Gaps In RIA Succession Planning Reveal Opportunities

America’s ageing population does not only show up in a larger proportion of adults nearing or reaching retirement, advisors themselves are also aging out of the business. Yet preparations for how to deal with this shift are at all-time lows in the industry, according to a new national survey by consultancy DeVoe & Co.

The firm polled 100 senior RIA executives, principals and owners whose responses reveal that only 42% of advisories have written succession plans in place. That’s the lowest number since the firm started asking the question in 2019.

While soaring advisory valuations make it less likely that junior employees will be able to buy out founders, consultants at DeVoe point out that succession planning is important not just for economic reasons, but to ensure steady management and reliability. That in turn may increase the value of the advisory even more, which would help founders looking to sell to a competitor and retire.

One big hurdle DeVoe identified is that respondents generally say they’d prefer to have their companies taken over by internal candidates, though they also report a lack of trust in the next generation. Only one-third say they trust the next generation to take care of their company, another third have medium confidence. The remaining third has none at all.

This suggests there’s a huge gap in expectations and training between senior advisor executives and partners on the one hand, and their more junior employees on the other. For a smoother transition, better client experience and higher advisory valuation, advisories should consider instituting mentoring and training programs to quickly and internally build up a suite of potential leaders that executives will trust to manage the company.

To enable that, advisories will need to use financial incentives to attract the best advisors so they can be trained for leadership roles. DeVoe’s survey identifies another gap. Only 49% of respondents said they have a clear plan for compensating advisors, with another 28% saying they give informal direction and 15% saying they give discretionary bonuses. Most respondents would not recommend their company’s compensation plan to a friend.

This marks a huge opportunity for RIAs. Reworking incentive plans will help hire, cultivate and retain the best talent, as well as ensure a smooth transition for the company.