Registered investment advisors surveyed by TD Ameritrade Institutional cite several reasons to have a succession plan in place for their practices.
That makes it all the more ironic that 57% of respondents said they do not have a formal plan in place, and 88% say they do not have a business valuation.
According to the study, 57% of respondents said they believe a succession plan supports the firm’s long-term viability; satisfies client expectations that a plan is in place (52%); provides a smooth transition into retirement (36%); provides continuity for employees (36%) and enhances the valuation of the firm (32%).
“The issue of advisors nearing retirement without formal planning is becoming increasingly important to address,” said Mike Watson, director of practice management for TD Ameritrade Institutional. “While some advisors may not be ready to sell or exit the business, anticipating the unexpected and putting a plan in place for the future can help put employees and clients at ease while positioning for the long-term viability of the business.”
TDAI, a division of TD Ameritrade Holding [AMTD], surveyed advisors by telephone in April and released the report on Wednesday. The company also said it is investing in a series of practice management tools to help principals figure out how much their practices are worth, and what to do with them when they retire. They include the Valuation Analyzer, an online tool to estimate a firm’s value. Echelon Partners, a Manhattan Beach, Calif.-based investment bank that focuses on the wealth management industry, developed the program for TDAI.
Yet TDAI found that a significant amount of RIAs are thinking about the future of their firms. Almost half of respondents, 48%, said they knew the current value of their firms. Thirty-nine percent of 39% of respondents said they have a succession plan. Out of that group, 49% said they expect a successor to take over the practice, and 18% said they would consider merging with another practice.
Also, 61% of survey respondents said they thought building a wealthier book of business was the common path to higher valuation. They intend to go about it by improving staff skills, adding staff, implementing a marketing plan, improving operational efficiency and investing in technology.