Transitioning Your Advisory Practice to the Next Generation

Transitioning Your Advisory Practice to the Next GenerationAs advisory firms continue to mature and evolve, one of the most important things founders must consider is the need to establish a cohesive succession plan.

With aging advisors expected to retire in droves over the next two decades and relatively few young people entering the industry to take their place, advisors continue to drag their feet when it comes to transitioning their advisory practice to the next generation.

Financial advisors without a succession plan for their practices risk not only their own retirement plan, but the well-being of their clients as well.

According to research firm Cerulli Associates, the average age of advisors is now 50.9 years. This research also found that 43 percent of advisors in the industry are over the age of 55, while only 11 percent are under the age of 35. Based on the expected number of retiring advisors, the entrance of new advisors to the industry and the growth in demand for financial advice, consulting firm Moss Adams estimates that the industry could face a shortfall of more than 200,000 advisors by 2022.

While the industry faces a looming talent shortage as a whole, RIAs — particularly, solo practitioners —are said to be the most vulnerable. Most of them lack the resources to recruit and train young people and studies show that only 30 percent of them have any explicit succession plan in place.

As practices become valued into the millions and an aging advisor population in possession of a wealth of knowledge reaches retirement, heads of advisory firms need to realize that succession plans and continuity plans can actually become growth tools.


With a succession planning process taking anywhere from five to 10 years to establish and implement, aging advisors are presented with a new challenge to train and develop financial planners.


“While the historical process was to train experienced salespeople who already had clients to become financial planners, the new model looks more like the traditional one for professionals: you begin with formal education, then transitioning to an apprenticeship-style period of gaining experience and honing skills, and only then — for the subset who wish to do so — should they go out to start a practice and cultivate a skillset as a ‘salesperson’ that works on business development.”

“In other words, we used to train salespeople to be financial planners and now the challenge is training financial planners to be effective salespeople! Ultimately, this will require new models of developing financial planners, as the required investments to train them are more significant than ever, in terms of both time and resources. This will force firms to figure out how best to make the process of creating new financial planners successful for both the new advisor and the firm as well,” wrote Michael Kitces, partner at Pinnacle Advisory Group.

Advisors who have, or hope to groom, their own successors, in the form of mentoring young talent, say there are a number of reasons to do so. Among other things, interns and/or recent college graduates tend to be less set in their ways, professionally, than older workers who come to the profession from other fields.

New advisors are usually integrated into existing practices slowly, giving existing clients time to get to know them. At the start, they generally perform “back office” duties and may do some financial planning and investment analysis. As they gain confidence and experience, junior advisors will play a more active role in managing client relationships and landing new clients.

Planners who have worked under veteran advisors say the experience not only taught them how to run a business, but it educated them on the softer side of the profession – in other words, the interpersonal skills that are critical for cultivating client relationships.

“I, basically, started off as a person who was just in client meetings to take notes and now I am running my own meetings and assisting some of our other advisors as they transition to more of a client-relationship role,” Jessica Bokhart, a senior financial planner at Market Street Wealth Management Advisors in Indianapolis, told CNBC.

Bokhart was the firm’s first employee when she was hired in 2006 fresh out of Purdue University, where she earned a bachelor’s degree in financial counseling and planning. Bokhart, a certified financial planner, said the firm’s managing director, Kevin Ervin, also a certified financial planner, made it clear to her from the beginning that she was a candidate to succeed him.

“It has been very helpful to start from the bottom and work my way up,” said Bokhart. She said she never seriously considered taking a post-college sales-oriented job at a big brokerage or insurance company.

“Being 22 years old after college and a female, I wondered how many people would trust me, back then, to manage their lifetime savings,” she recalled.

The inability to attract so-called “next-gen” advisors to the business remains a major challenge. Advisory firms across the industry will eventually be affected by the looming labor shortage.

“Not enough young people are entering the industry,” Ric Edelman, chairman and CEO of Edelman Financial, told CNBC. “Advisors see this as an issue in the industry, but they also see it as someone else’s problem.”

Another challenge facing the industry and affecting independent advisors is how to engage and incentivize the younger generation to enter the field. Maybe advisors need to start looking at courting the Gen X and Gen Ys, which represent more than 88 million members and 52 million individuals, respectively. These groups are technologically astute, educated, intelligent, ethnically diverse and like a work-life balance.


The greatest obstacles that aging advisors face in attracting and blending these generations are the differences in communication and motivation. Traditional approaches to motivate employees don’t seem to apply to Gen X or Y. It is imperative these groups learn how to speak to each other and, more importantly, understand one another.


“[W]e are now in the midst of creating a new path for training and developing financial planners. The experience of this generation of planners, who are increasingly entering financial services already having started their education and training as planners, are substantively different than the generation that preceded them. This may be the second generation of financial planners, but it will be the first generation trained as such from the start. This will ultimately require us to develop new training models and even new business models to accommodate a training/career track. The firms who figure out how to do this effectively — and garner value from their ‘financial planning apprentices’ as they learn their craft — will be best positioned for long-term success!” wrote Kitces.

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