One-third of advisers plan to exit business within a decade

Cerulli study: A succession partner is biggest hurdle for 32% of advisers eyeing retirement

Feb 3, 2014 @ 12:43 pm

By Joyce Hanson

More than one-third of U.S. financial advisers are planning to leave the business over the next 10 years, according to Cerulli Associates Inc.

Cerulli highlights that statistic in the first-quarter issue of The Cerulli Edge, Advisor Edition, and declares that the need for succession planning is growing. The execution of a succession plan can take a year or longer, particularly for advisers with unique specializations, diverse business lines or out-of-the-way locations, the report said.

Michael Paley, managing director of business development and relationship management with Focus Financial Partners, who assists advisers with succession planning, said Cerulli's report reflects a succession crisis in the advisory industry.

He cited 2012 Cerulli research showing that there are more than $2.3 trillion in assets managed by advisers 60 and older. The majority of those advisers, approximately 70%, are sole proprietors, and less than 25% have a succession plan, according to the 2012 InvestmentNews Adviser Solutions Succession Planning Study.

“The volume of assets that require a continuity plan coupled with the number of advisers that don't have a strong continuity or succession plan in place is scary,” Mr. Paley said.

Although questions about succession can make both clients and staff members uncomfortable, Cerulli warns that advisers need to discuss their future plans long before they retire.

Not only do advisers have a hard time acknowledging they may be vulnerable physically, emotionally or intellectually, they avoid the tough job of developing a succession plan because the task of recruiting and training new talent is complex and time-consuming, Mr. Paley said.

“We need new people to come into the industry, and they need to come in a different way,” said Craig Pfeiffer, founder and chief executive of Advisors Ahead, which places students and graduates in structured internships. “It's beyond succession planning; it's about continuity and transition.”

The current generation of financial advisers entered the business in a “sink or swim” environment, where they learned by making mistakes, he said, noting that by contrast, young people who enter professions such as law or medicine typically learn by watching success.

“We need to develop an associate adviser entry model to existing financial advisory teams,” he said.

Mr. Pfeiffer, a former Morgan Stanley Smith Barney executive vice president, said the 32% figure is not an unreasonable attrition rate over a 10-year period. But the advisory business needs more professionals, he said, as retiring baby boomers seek more advice, people in mid-career with 401(k)s want help managing their money and Millennials start inheriting wealth.

“If demand was dying, [this level of adviser outflow] would be OK, but demand is actually increasing,” Mr. Pfeiffer said. “There have never been more investors coming to the market with more complex scenarios and demanding more sophisticated solutions.”

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