Although financial advisors skillfully help their clients plan for their future, they sometimes fail to apply the same forethought to their own businesses. In fact, only 27% of financial advisors have a succession plan or formal preparations for transitioning their business, according to a 2018 report from the Financial Planning Association (FPA). The need for such arrangements is all the more urgent given that the average age of financial advisors is 55, and about one in five financial advisors are aged 65 or older, according to a JD Power study by 2019. The fact that so many financial advisors are close to retirement age raises the question: what is their legacy strategy?
To answer this question, SmartAsset conducted a survey of financial advisors on our platform to gain more up-to-date insight into succession planning within the financial planning industry. We surveyed more than 460 financial advisors, asking questions ranging from the type of succession plan their business has to the impact of COVID-19 on how their business views succession planning. For more information about our data and how we collect it, see our Data and Methodology section below.
The number of financial advisors with a succession plan has increased. Our findings closely align with the 2018 FPA report, as 27% of financial advisors have had a succession plan in place for six years or more. However, we also found that 38% of advisors surveyed had a succession plan in place in the past few years. Thus, our results show that in February 2022, approximately two-thirds of financial advisors (64.36%) have a succession plan.
Most financial advisors without a succession plan intend to start one at some point in the future. Of the advisors surveyed without a succession plan, about 56% say they plan to create one at some point in the future. The remaining 44% of these advisors (or roughly one in five respondents of all advisors surveyed) have no plans to transition or sell their business and have no plans to start one.
Succession planning for financial advisors is not a priority for most people. Although the lack of a succession plan for financial advisors poses a potential risk to clients, only about one in four financial advisors (25.05%) say clients ask about their firm’s succession plan .
Succession planning: types and years in place
The two main types of succession plans are internal and external. With an internal succession, the business passes to someone currently working in the business while an external succession includes either an external board taking the lead or other external events (i.e. sale of consultancy firm, merger of one consultancy firm with another, etc.).
In the companies surveyed, most advisors plan for internal succession. Nearly 71% of advisors who have a succession plan intend to pass their business on to someone currently working at the firm. About 11% of advisors plan to pass their business on to a family member. In contrast, less than 9% of financial advisors are considering selling their business to another firm.
For advisors with a succession plan, we asked how long their plan had been in place. Most succession plans have been written for at least a decade, with nearly 31% of companies answering the question for more than 11 years: “How long has your succession plan been in place?” There has been an increase in the number of financial advisors creating a succession plan over the past five years. About 28% of advisors with a succession plan created their plan three to five years ago while nearly 22% of advisors formed a plan one to two years ago.
Has COVID-19 impacted succession planning?
Although the COVID-19 pandemic has changed many things for financial advisors, perhaps most notably how they communicate with clients, most financial advisors’ succession plans have not been affected. Although about 20% of advisors created a succession plan in 2020 or 2021, about 93% of financial advisors say the pandemic hasn’t changed the way their business looks at succession planning.
Of the companies that have noticed a change, most advisors point out that succession planning is seen more as a necessity and a priority. An adviser said that with the threat of COVID-19, they need to consider what happens to their customers and their income in the worst case. Others note their desire to benefit from the hard work they’ve put in over the years, and with that in mind, it’s important to have an exit strategy.
Data and methodology
The survey data for this report was collected by SmartAsset between February 3, 2022 and February 21, 2022. A total of 463 financial advisors responded to our survey. Although the full survey had six questions, not all questions applied to all advisors and some advisors chose to skip some questions. We used the largest possible sample when discussing results for a given question.
Tips for running your consulting business
Smooth out your succession plan. If you’re a financial advisor without a succession plan and don’t know where to start, check out our introductory guide here. We go over the basic steps for setting up a business transition plan.
Want to grow your business? Pre-screen leads that match your customer profile. Consider using a service that can connect you directly with potential customers. If you’re looking to grow your practice, our SmartAdvisor platform connects advisors directly to local prospects. You only pay for investors who match your client profile.
Questions about our study? Contact us at firstname.lastname@example.org
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