The Plan You Haven’t Written Yet: Succession, Risk, and the Next Generation

Last month, I wrote about the wave of M&A reshaping wealth management from the top down. We want to now look at the version of that same story that plays out one practice at a time: what happens when an individual advisor never gets around to answering the succession planning question.

The numbers are not subtle. More than a third of financial advisors are expected to retire or step back from their practices within the next decade, controlling roughly 40% of total industry assets, according to Cerulli Associates. And yet, by Cerulli’s own count, only about a quarter of practices nearing retirement are unsure of what their advisor succession plan is, if they have identified one at all, not to mention where to even start. Other industry surveys put the number of advisors without a written plan even higher, into the majority. Whatever the precise figure, the pattern is the same: a profession built on helping other people plan for the future has, in aggregate, done a mediocre job of planning for its own.

What is Actually at Risk?

Succession planning gets postponed for reasons that are almost universal. It can be emotionally complicated, since an advisor’s practice is rarely just a business, it is a career worth of hard work, deep relationships, and all the emotions that come with that.  An advisor without a succession plan is not simply an advisor without a plan, however. They are operating a practice with an invisible liability on the balance sheet, one that surfaces at the worst possible moment, many times due to unforeseen life events.  Practices sold without preparation routinely realize a fraction of their potential value. Clients feel it too, left uncertain about who will manage their accounts and whether the relationship, not just the assets, survives the transition. And the advisor’s team, junior partners, client associates, are potentially left with no clear path forward at the firm it helped build.

There is also a talent dimension to this that does not get discussed enough. The industry is short on experienced advisors even as the wealth being managed keeps growing; some estimates put the coming shortfall in the tens of thousands over the next several years. A practice with no plan for continuity is a practice that cannot easily recruit the next generation of talent into it, because there is nothing durable to recruit them into.  It’s our collective responsibility to show the next generation a path.

The Opportunity Hiding Inside Succession Planning

Here is the more encouraging half of this story. Succession planning, done well, is not primarily a retirement tool. It is a growth strategy and a recruiting tool for the entire span of an advisor’s career. A documented, visible plan tells clients their financial relationship will outlast any one person’s calendar. It gives a firm’s next generation, associates and junior advisors who are increasingly motivated by purpose and mentorship rather than income alone, an actual reason to build a career inside the practice rather than elsewhere. As for the industry, thoughtful succession planning is one of the few tools capable of solving two problems at once: an aging advisor population and a talent pipeline that needs real ownership opportunities to attract the best of the incoming generation.

The keys to advisor succession planning are not necessarily exotic. Start early, years, not months, before you intend to transition. Put something in writing, even an imperfect plan beats no plan. Identify and mentor an internal successor if one exists, a family member, talk to your firm to see if they have an internal solution to acquire your practice. Here at LaSalle St., we work with our advisors every day on succession planning and we offer several paths they can take in order to find the right solution for their practice.  Over the years we have even had advisors transition in to get access to our succession solutions.

The Bottom Line

Consolidation is reshaping this industry at the firm level. Succession is reshaping it one practice, one client relationship, and one career at a time. The advisors who treat succession as a strategy rather than a someday problem will be the ones best positioned to protect what they’ve built and hand it to a generation ready to carry it forward.

LaSalle St. is a family of independent wealth management firms founded in 1974 and based in Chicago. The firm proudly supports more than 350 hyper independent financial advisors across broker-dealer and RIA platforms, with approximately $16 billion in total client assets. To learn more about affiliation with LaSalle St., visit lasallest.com.

Sources & Further Reading: Data on advisor demographics and industry transition readiness sourced from The Cerulli Report: U.S. Advisor Metrics by Cerulli Associates.