The RIA industry is on the cusp of a surge in transition activity, but 57% of advisors in a survey released Monday said transition to next-generation leadership would be bumpy or worse, with a few acknowledging that there was no qualified candidate within their firm.
DeVoe & Co., a consulting firm and investment bank, conducted the survey between November and January among 118 senior executives, principals or owners of RIA firms ranging in size from $100 million to more than $5 billion in assets under management.
For larger RIAs, those managing assets between $750 million and $1 billion, the situation is even more critical. Eighty-seven percent of these firms said passing the baton to the next generation would be bumpy or face significant challenges.
According to the report, individual firms and the industry as a whole will suffer if active coaching, career path development and leadership planning are not implemented.
“Succession planning is more akin to a journey than an event,” David DeVoe, the consultant’s founder and chief executive, wrote in the report. “Advisory firms that start this process and commit to ensuring their G2 is positioned to run the firm will have a greater set of options and a more secure path forward.”
Performance management is essential for building a motivated team focused on shared goals, the report said. Yet 65% of RIAs surveyed reported that they conducted performance reviews only once a year or less, if at all.
This means that employees are often unaware of performance gaps, and may even be focused on outdated goals, according to the report.
“RIAs who shift in the direction of treating performance management as a continual conversation will be rewarded by employee loyalty and satisfaction — and, in turn, business improvements,” DeVoe said.
According to the report, lack of effective compensation plans is emerging as one of the RIA industry’s biggest challenges. Fifty-four percent of firms in the survey said they did not have a clear, methodical incentive compensation plan.
Effective compensation plans help employees see a direct correlation between their goals and actions and business results, as well as a correlation between their contributions and their rewards, the report said. Other benefits also accrue: job satisfaction, organizational commitment and trust in management.
The survey results showed that 49% of RIAs had not mapped out career paths for advisors and other employees, which could help them see opportunities to grow within the firm and take tangible action steps to increase their contribution.
Eight percent of respondents acknowledged that essentially zero communication on the topic existed in their firm.
On a positive note, 86% of RIAs said coaching was valuable for their firms and employees. “Just as elite athletes hire coaches to take their game to the next level, today’s top RIA leaders understand that an experienced, trusted partner can accelerate the achievement of their goals,” DeVoe said.
The report noted that the process of working in a purposeful coaching process is the best way for those being coached to gain exceptional value from the structured and layered components of performance development, incentive compensation and career path development.