© 2016 by Career Management Advisors LLC.

  • Linda Willis

Why Running the Business into the Ground remains RIAs Default Succession Choice



According to researcher Cerulli Associates, the average financial advisor in the United States is 51, with one third of all advisors falling between the ages of 55 and 64. Yet the unfortunate reality is that 73% of financial advisors don’t have a succession plan and 32% of them are within 10 years of retirement.

Notably, many advisors don’t have succession plans because they have no plans to retire and choose not to retire. A large percentage of advisors enjoy working with clients, want or need the recurring revenue stream and have no real interest or pursuits outside of work.

Rationally, one might consider from a cash flow perspective trading your book of annuitized, revenue-generating clients for a buy-out deal of 2-3x one year of revenue doesn’t necessarily sound compelling. This is especially true if you are in good health, love what you do and desire to work and receive the income for years to come.

The challenge and the flaw in that thinking comes when the advisor is a solo practitioner. With no younger generation integrated into the practice, advisors can find themselves riddled with questions and concerns from clients with respect to the future and longevity of the advisor. Questions and concerns turn into departures and diminished revenue and ultimately diminished business valuation.

Additionally, and some would say most importantly, as a fiduciary is it really prudent or responsible to not have a team in place to take care of clients in the event of unforeseen disability and eventual death? Working until death of the business or an advisor’s own death may extend income for a period of time, but it is not in the best interest of the client or the advisor.

The answer seems to lie somewhere in between. While there are a number of advisors who desire to work in perpetuity, the result does not have to be the slow death of the business. It is not irrational for an advisor to want to keep the income flowing. And let’s face it; a business well established may not require exhaustive effort to maintain so long as the contingencies are in place allowing clients to have peace of mind for the unforeseen as well as the inevitable. Mergers offer solo practitioners viable opportunities to continue in their practice, maintain cash flow, and introduce next generation team members to clients ensuring business continuity and quite possibly business growth. This growth can be fostered by renewed energy, fresh ideas and perspectives regarding the strategic plan as well as with client services, and potentially new services that clients of the solo practitioner had not had the benefit of before. What’s needed to ensure success is a brand alignment on the combined areas of expertise and ideal clients to target. Such an alignment can spearhead an updated marketing strategy using the appropriate messaging and channels to achieve better marketplace visibility and to maintain a steady flow of ideal clients. And, the addition of new colleagues in the post-merger scenario can foster a “divide and conquer” approach to match expertise and passion to deliver even a higher value to clients.

Growth in turn can result in higher valuation when the time does come for the advisor to exit the business either through chosen retirement or death. Mergers also present opportunities for RIAs with younger advisors to reap the benefits of a senior, experienced professional who has weathered more market cycles and brings a certain gravitas and insight. Advisors have more than the option to sell and exit or allow their business to die a slow death. A merger may be the optimal solution.