A new report from Cerulli Associates finds that the next 10 years will see 37% of financial advisors exit the business, collectively controlling $10.4 trillion, or 40% of total industry assets.
“Successful independent firms now often think in terms of the legacy they will leave behind for their clients and community …”
Yet the research, co-sponsored by Commonwealth Financial Network, also finds that one in four advisors who expect to transition out are unsure of their succession plan.
In evaluating potential successors, Cerulli notes that advisors place the most importance on the personality of the acquiring advisor (88%), the likelihood to put the client’s interests first (85%), and the regulatory/compliance record (85%).
Style differences with the seller (52%), client transitions from the seller to the buyer (48%), and overall time commitment to finalize a deal (48%) are the top challenges for advisors acquiring a practice, according to practice management professionals.
The research adds “that practices considering internal succession should pursue transparency while embracing the concept of shared equity ownership as part of their culture.”
“It’s important to recognize that talented advisors will only wait so long for ownership opportunities to come to fruition,” Rose said. “For independent firms considering the sale of equity to the next generation advisors on their teams, the research recommends securing sources of financing for them.
Whether a business transition comes through a sale to a third party or through internal succession, it is highly advisable to have strategic partners that can advise independent firms on the various elements of their succession plan.
“Successful independent firms now often think in terms of the legacy they will leave behind for their clients and community—and they’re adopting business models designed to endure even after they exit the firm,” Kenton Shirk, VP of practice management at Commonwealth, said. “A strategic partner is critical to helping firms navigate options whether they’re thinking ahead about succession or driving growth through acquisitions. A partner firm can also assist with key elements of a transition, including financing, valuation resources, guidance on terms and structure, sourcing prospective candidates, and more.”