As the advisory universe ages, it's inevitable that more advisors will retire, become disabled, or die. Just as inevitable, there will be more sales of interests in advisory practices or entire practices. But just how valuable will those practices be, with most clients drawing down rather than building up the assets that advisors manage?

"Advisors may experience unforeseen consequences down the road if they don't address key business issues such as the aging of their clients, continuity planning, and building scale," John Furey, principal of Advisor Growth Strategies, a consulting firm in Phoenix, told Financial Planning. Furey is the managing member of the Alliance for RIAs (aRIA), a study group of RIAs. A recent aRIA whitepaper, Creating Value and Certainty Within Your Independent Advisory Firm, spells out the age-old problem and offers some recommendations.

The aRIA paper reveals that 50% or RIAs are now 50 or older while 48% of the independent contractors who work with an independent broker/dealer (IBD) are in that age group. The average age of the independent owner is 55, and increasing. At the same time, 80% of RIA clients and 72% of clients in the IBD world are north of 50.

As aRIA member Neal Simon, CEO of Rockville, Maryland-based Highline Wealth Management, summarizes in the whitepaper, "Advisors are aging, and the clients of advisors are aging along with them. Left unaddressed, this creates the perfect storm of opportunity and uncertainty. Add to this the fact that most advisors a) do not have a succession plan, and b) even if they do, they fail to realize that their plan is not the same thing as a plan to sell, and you have major looming issues."

Furey explains that there are major differences between succession planning and preparing an advisory practice to be sold. "Many advisors are not reconciling the fact they own an annuity-style practice to sustain their personal lifestyle versus a business with real value," he told Financial Planning. "When thinking about the value of a firm's business, most advisors underestimate the risk to their future cash flows and may perceive the value of their business as inflated."

How can advisors boost the real value of their business? "When aRIA thinks about building enterprise value," the whitepaper concludes, "a key element is providing stability and certainty of profits and cash flow." Firms that diversify business lines, services and revenue sources may be able to increase cash flow stability and decrease their revenue risk, "two of the key drivers" to increasing the value of a business when it's put up for sale.

Besides Furey and Simon, the other aRIA members are Brent Brodeski, CEO of Savant Capital; John Burns, principal at Burns Advisory Group; Ron Carson, CEO of Carson Wealth Management Group; Jeff Concepcion, CEO of Stratos Wealth Planning; and Matt Cooper, president of Beacon Pointe Wealth Advisors.