Smaller registered investment advisory firms are more likely to have halted internal succession plans due to the coronavirus pandemic, according to a new study.
A survey conducted by DeVoe & Co., an RIA consultant and investment bank, shows that 7% of firms plan to delay the handover of their operation to the next generation of leaders. Almost all of the firms had less than $500 million in assets under management.
Small advisers have had the most difficulty in coping with the COVID-19 outbreak because their owners are spread thinly, the study said. They focused on helping clients during the pandemic rather than tending to longer-term business plans.
“The reality is that strategic decisions — like succession planning — simply have to take a back seat for firms that are run by owners wearing several hats,” the study states.
But small firms also are among the few (1%) that are speeding up succession plans due to the pandemic.
“These owners are taking action — moving with conviction to shore up this risk,” the study states. “All of the respondents who said they are accelerating their internal plans are at firms between $100 million and $500 million in size — firms that are most exposed to the COVID threat.”
The vast majority of firms (92%) are staying the course on their succession plans.
DeVoe RIA M&A Outlook Study is based on a survey of 128 firm owners, principals and executives taken between late May and late June. Firms ranged in size from $100 million to more than $5 billion in AUM.
The study found that the number of advisers open to an external sale of their firm has declined to about 32% this year from 50% last year. That change in sentiment comes while the confidence that the next generation has the ability to purchase firms rose to 39% this year from 34% last year.
“This significant shift in such a short period of time seems to be directly or indirectly related to COVID,” the study states. “The uptick in the expectations that [the next generation] can afford to buy out founders, the perception that valuations will decline, and this decrease in interest to sell externally are correlated with one another. This is good news for junior advisors who have invested years in their firms, in anticipation of investing their personal capital in the business.”
About 90% of advisers surveyed said the lack of succession planning is a major problem for the sector. The study asserted the pandemic is adding urgency to the situation.
“COVID was a shot across the bow for any advisory firm that is operating without a succession plan,” the study states. “We now live in a world where going into the office can be a life or death decision. The increasing realization of the magnitude of this succession problem is good for the future of the industry.
“A silver lining is that COVID will likely drive more RIAs to take action.”
From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.
Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.
“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.
Sellers shift focus: It's not about succession anymore.
Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.
RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.
As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.
