Practice Management

What boomer advisers should do when their successors get impatient

Don't be surprised if young advisers move on to a new opportunity when they are not given a chance to spread their wings

Mar 25, 2016 @ 1:38 pm

By Joni Youngwirth

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A power shift is under way in our industry. Baby boomer and next-gen advisers are like seismic plates shifting underground, with one group poised to become more powerful as the other slowly fades. This change may not happen without a volcanic eruption, however.

The oldest boomers are 70. Whether consciously or unconsciously, many have chosen to “die with their boots on.” One reason for this is called work salience — which is the notion that our personality is derived from our work. In other words, “If I am what I do, then when I don't do, who am I?” And if an adviser feels a strong sense of satisfaction from his or her work, it's understandable that it would be hard to let go and move on. Mark Tibergien, chief executive of Pershing Advisor Solutions, recently wrote about this challenge, describing what many advisers don't want to hear: what it takes to exit the business gracefully.

One way to make this happen is, of course, the succession plan, which allows advisers to monetize their business at some point in the future. This also requires identifying a successor, which many advisers have done by having a next-gen adviser waiting in the wings (i.e., the business heir apparent). What's the problem with that? Next-gen advisers are becoming impatient.

Increasingly, we hear stories of next-gen advisers who spent a decade in a firm, only to give their notice and start working somewhere else. Here are a few reasons this may be happening:

• The founding adviser has transitioned to a lifestyle practice, while the next-gen adviser is expected to pick up the slack. The next-gen adviser feels that he or she has all the responsibility but few of the benefits of owning the business.

• The next-gen adviser has grown up professionally, but others still see him or her as a young adviser just starting out. The next-gen adviser feels locked in and that the only way to alter others' perception is to change firms.

• The next-gen adviser has been told he or she is the heir apparent, but no written agreement exists with the boomer adviser. At a stage in life when he or she is taking out a mortgage, having a family and saving for a child's college education, it's not surprising that the next-gen adviser wants formal acknowledgment of his or her place in the future of the firm.

In many cases, next-gen advisers want more clarity, control and compensation. And as there are not enough next-gen advisers to go around (more advisers are leaving the industry than joining), emerging power is in their hands. Boomer advisers who assume that a next-gen adviser who has been working for them for 10 years is happy and satisfied may be in for a rude awakening as that next-gen adviser one day decides to move on, leaving the boomer adviser with no return on investment, no successor, and, potentially, ill will.

WHAT CAN BOOMER ADVISERS DO?

Given the current frenzy for next-gen advisers, I think we can expect more shifting to occur before the situation stabilizes. Boomer advisers should assume that next-gen advisers are up for grabs unless they are tethered to the organization in some way. This means boomer advisers may need to execute written succession agreements sooner than later to retain their next-gen adviser. Or, if that isn't in the cards, consider plan B: merging with a larger firm. Practices are still very much in demand.

Dying with your boots on is common in this industry, where it's easy to continue to practice indefinitely. But holding on to power probably isn't going to serve boomer advisers well in the long run. The next-gens will continue to take a step toward control one year at a time. If they are not given a chance to spread their wings, we shouldn't be surprised when they move on to a new opportunity.

Joni Youngwirth is managing principal of practice management at Commonwealth Financial Network.

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