Practice Management

It's time to make way for next-gen

Boomer advisers must assure successors a future, or they won't stick around to help you cash out

Apr 3, 2016 @ 12:01 am

By Joni Youngwirth

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.

MONETIZING THE BUSINESS

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, 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 when one day that next-gen adviser decides to move on, leaving the boomer adviser with no return on investment, no successor and, potentially, ill will.

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 rather than later to retain their next-gen adviser. Or, if that isn't in the cards, consider plan B: Merge with a larger firm. Practices are still very much in demand.

DON'T DIE WITH BOOTS ON

Dying with your boots on is common in this industry, because 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-gen 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.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Advisers on the Move

Upcoming Event

Apr 30

Conference

Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video

INTV

Why broker-dealers are on a roll

Deputy editor Bob Hordt and senior columnist Bruce Kelly discuss last year's bounce-back for IBDs.

Latest news & opinion

SEC advice rule may give RIAs leg up over broker-dealers

Experts say advisers will be able to point to their role as fiduciaries as a differentiator in the advice market.

Brokers accept proposed SEC rule on who can call themselves an adviser

Some say the rule will clear up investor confusion, but others say the SEC didn't go far enough.

SEC advice rule: Here's what you need to know

We sifted through the nearly 1,000-page proposal and picked out some of the most important points.

Cadaret Grant acquired by private-equity-backed Atria

75-year-old owner Arthur Grant positions the IBD for the 'next 33 years.'

SEC advice rule seeks to tighten reins on brokers

The proposed rule puts new restrictions on brokers, but it is still unclear how strongly the SEC is clamping down.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print