Why Every Financial Advisor Needs a Succession Plan

The financial services industry faces some upcoming challenges, including job sector growth, high client attrition rates and competing technology innovations. And while no one-size-fits-all solution exists, a succession plan can help solve or minimize most issues before they impact firms. After all, many people wonder what would happen if their financial advisor retired or passed away — but don’t ask directly. Having a solid succession plan reassures your clients that no matter what happens, their portfolios are in the right hands.

Finance Industry Experts Predict Major Challenges for Advisory Firms Going Forward

Here are three huge issues the financial planning industry faces over the next decade, plus proposed solutions for each problem. In every example, a succession plan could make the difference between driving new business growth — or shutting your firm’s doors.

Challenge: Advisory job growth is expected to hit 30%, but less than 22% of all financial planners are under 40

Extrapolating from Bureau of Labor Statistics data, experts believe advisory firms should see 30% employment growth from 2014 to 2024. This rate’s exponentially higher than most other financial services occupations. As the U.S. population ages and average life expectancies rise, demand for financial planning services should increase along similar lines. And since one in three financial advisors working today will retire in the next decade, a succession plan is crucial.

Here’s a related issue: Many financial advisors are struggling to source and retain younger investor clientele. Why? It’s likely because clients don’t want to outlive their financial advisors. Since financial planning is a lifelong commitment, Millennials and Gen-Xers want to know their money is safe. With robo-advisors encroaching on financial planners’ market share, firms must keep abreast of new technology in order to stay competitive.

Solution: Recruit and start grooming Gen-X or Millennial employees for senior FA positions by implementing an internal 10-year succession plan

If you haven’t already outlined a succession plan for your own advisory firm and position, it’s time to create one. One simple task to get the ball rolling is setting up meet-and-greet sessions for clients with teenaged or adult children. Introducing yourself to your clients’ heirs and involving them in the decision-making process now is key to retaining them post-inheritance. Grooming younger advisors, introducing them to the firm’s clientele, and establishing trust with senior staff also helps foster long-term growth.

It’s also important to ask yourself what your end game is for own advisory position. Do you want to pass the baton to a younger partner at retirement, or have a family member succeed you? Do you want to work with only a select group of clients or demographic — or eventually sell your advisory firm? You’ll need to know the answers to these questions before you can successfully devise and implement your own succession plan.

No matter what future you envision for your career, the best way to achieve that is through a succession plan. And inevitably, that means you’ll have to train and groom a younger-generation successor to eventually take over all your accounts. Even if you plan to sell your business and retire in 20 years, it’s important to have a contingency plan. If your focus involves specialized trading strategies, it’s even more important to start training your replacement several years out.

Challenge: Mitigating high advisory client attrition rates during the 30-year intergenerational wealth transfer

According to industry experts, younger generations stand to inherit one trillion dollars in wealth annually for the next 30 years. A recent Accenture report stated that 86% of advisors say they understand their clients’ heirs and corresponding investment needs. However, a 2016 MFS Investing Sentiment Insights survey found that 51% of heirs had never met their parents’ financial advisors. There’s never been a better time for financial advisors and firms to build strong, multigenerational bonds with their clients’ heirs. Ideally, you should focus on making and solidifying that bond with clients and their families before the wealth transfer occurs.

Solution: Use a 10-year internal succession plan along with inheritance training seminars to foster interaction among heirs and younger FAs

A comprehensive succession plan must focus on retaining each client’s heirs after they inherit their wealth. Once your firm’s selected younger FAs to train and eventually succeed senior planners, start including them in client advisory meetings. Inheritance training seminars provide multiple benefits for clients, heirs and younger trainees. Here are just a few benefits you’ll reap from hosting these seminars:

  • You can initiate and guide the conversation with clients’ children about their own future investment plans. Involving children in family conversations about money, budgeting, and financial needs now helps build trust in your firm’s advisory expertise. When heirs inherit their wealth, you’ll have valuable insights into their own financial needs, spending habits and investment preferences.
  • You have an opportunity to introduce heirs and younger partners at your firm, including potential advisory successors. Millennials and Gen-Xers training under an advisor’s succession plan can see who they may be working with in the future. These early, low-pressure interactions help establish potential future business relationships while encouraging heirs to stay with their parents’ advisory firm.
  • Familiarity between heirs and advisory staff reduces client attrition risks. Establishing rapport with heirs years before the benefactor passes away can make all the difference in retaining them as clients. Not sure how to get the conversation going? Ask about the child’s interests and career goals. For example: Did your client’s son just celebrate his Bar Mitzvah? Recommend small investments that can help money gifts grow to pay for college. Is your client’s daughter graduating from college next year? Career advice is a service you might want to offer her (or all the family’s younger siblings).

Challenge: Thanks to the March 2015 FINRA Rule 2040, independent advisors who die or become disabled without a succession plan in place risk losing everything

Unfortunately, FINRA Rule 2040 excludes spouses and others who aren’t registered broker-dealers themselves from collecting client commissions or advisory fees. Without a succession plan in place, you or your advisory firm could lose everything you’ve worked for over the years. This is especially worrying for smaller firms and solo advisory practices.

Solution: Outsource whatever business tasks you can for now in order to focus on creating and implementing your succession plan

Solo financial advisors, listen up: Growing your business, training a successor(s) and keeping clients happy doesn’t have to be all-consuming. It’s true that putting a succession plan in place is a lengthy process that involves multiple factors. But that plan also ensures your firm’s assets won’t get stuck in probate, should the worst occur. For now, the best way to focus on finding and training your successor is outsourcing any non-essential tasks you can.

More Businesses Are Outsourcing Their Lead Generation Needs

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Our completely free and secure Lead Management System (LMS) software helps you track, report, and optimize the lead intake process. If you choose to opt into using our LMS software, you’ll get personalized customer service from a dedicated account manager. Looking to grow your business quickly or simply outsource cold-calling prospective clients? Our U.S.-based call center staff is available 24/7 to initiate intake calls, get contracts signed and process new client conversions. While this optional service isn’t free, our staff boasts a 70% contact rate and higher client conversion and retention rates.

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