Each firm’s succession plan and transition will be unique, but whether it’s an internal transition, merging and staying involved or selling and moving on, not enough advisors are planning for it.

“We’re trying to help them think about what their options are,” said Waldemar Kohl, vice president for Fidelity Institutional Wealth Services at a conference in New York City on Thursday.

Kohl guided advisors through an envisioning exercise and former advisors shared their succession stories in a workshop and panel discussion on Realizing the Value in Your Firm at Fidelity’s Inside Track practice management conference for advisors. 

The envisioning exercise isn’t about the practice, the staff or the clients, but instead about the advisor. “We ask them to envision their life after their practice,” Kohl said. “If you focus on what is important to you in the end game, that will drive a lot of your choices and behavior today.”

According to Fidelity’s research, 75% of advisors do not have a succession plan in place. Forty-three percent of advisors never plan to stop working, Kohl said.

With the average age of advisors in the mid-fifties, this makes sense. “You feel indestructible in your forties, fifties and sixties,” said Rod McRae, the former owner of McRae Capital Management who chose an internal transition, handing off his business to his two sons. “But I would question the idea that you want to work forever,” McRae said.

He was one of those people who planned to work forever, but as he got older, that changed, and even before that, he became concerned about his practice. “At 60 I realized I had to do something about the staff and the clients,” McRae said. He almost sold to a bank, but when his oldest son expressed interest in coming into the business he chose that route. A few years later his younger son got involved, too. “I couldn’t be happier about the way it turned out,” he said.

Most advisors, two thirds according to Fidelity research, would like an internal transition, passing the practice on to junior advisors at the firm, Kohl said. However, of that group, 71% say they have not identified a successor.

This is one of the major challenges that Kohl sees when it comes to succession planning in the advisory industry. “Next generation leadership—there’s a gap between those that started the business and the younger, talented advisors who don’t know how to run a business,” Kohl said. “How can you spend more time grooming the next generation leaders, helping them become more business minded?” Advisors will need to teach the business mindset to junior advisors if an internal transition is to work.

From McRae and Allan Eyre of JAE Consulting, the other former advisor on the panel, the best advice they had for advisors was to plan ahead. Eyre said he was very lucky that the sale of his firm moved very quickly, but that advisors shouldn’t do what he did. “You should start planning this 3 years ahead of time,” Eyre said.

McRae agreed. “You don’t have enough time, but you have to make the time,” he said.

Getting advisors to start thinking about and planning for succession is one the reasons Fidelity is bringing advisors together at regional conferences like these. David Canter, executive vice president of practice management and consulting for Fidelity Institutional Wealth Services said he had just heard a story of two advisors merging their practices after meeting and talking at a conference.

Canter encourages advisors to walk away with one to two actionable items and to get to know at least one new person. “You never know how that person could impact your life or your practice,” Canter said.

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