Succession planning is one of the major issues facing the financial planning sector, but a new survey finds that only a very thin minority of advisors have a well-developed succession plan. In addition, while advisors may have a good idea about their clients’ wealth, very few have a good idea about the value of their own practice.
The survey conducted by Mathew Greenwald & Associates, found that only 11% of advisors had completed a succession plan. About a third have started but not completed a plan, 44% said they’ve thought about making a plan but had not started one, and 12% said they haven’t even started thinking about creating a succession plan.
Though conducted on US advisors, Jerry Butler of Queenston Consulting, which specializes in mergers, acquisitions and divestitures in the financial services industry says the numbers in Canada are likely much lower.
"I’ve seen stats from the States that say it’s only 10-15% who have a plan, and I would say it’s only about half of that in Canada,” said Butler. “I’ve given presentations to a couple of hundred advisors, and I ask the audience ‘who has a succession plan?’ There was only one person who said he did… and he was 80 and sold it to his son, so it doesn’t really count.”
Peter Merrick of Merrick Wealth, a Toronto business that specializes in business succession consulting, says that very few advisors in Canada see a reason to have a plan.
“For advisors, these guys have trailers and they have good income coming in and low overhead; it makes money," Merrick told Wealth Professional. "What are they going get [selling] two or three times the trailers? They’ll say ‘hey I’m healthy enough, I’m making money, I’m going to keep on working!’”
In the survey, only one in 10 advisors believed they had an “excellent” estimate of the value of their practice, though 33% said they have what they consider to be a “good” estimate. The largest segment, at 44%, said they had “some sense” of the value of their practice. An additional 12% said they “didn’t have any idea” how much their practice is worth.
What is the roadblock to succession planning? A strong majority of advisors, 81%, said the industry does not do a good job of helping representatives plan for succession, a problem that many advisors see in Canada.
“There’s so much that these guys [with big firms] can’t do, and they are restricted as to who they can play with, who they can sell their business to,” said Merrick. “If you belong to a captive organization like any of the banks, to move your business is almost impossible.”
Still, most advisors admitted that they, too, are at fault: 55% said they were too busy with their practice to think about succession planning, and 53% said that they have procrastinated too much on the issue.
“Overall, I think the industry has been active in discussing this issue and developing programs for advisors to help them with succession planning, but clearly the need to do more continues,” said Brian Heapps, president of John Hancock Financial Network, which commissioned the survey .
Many advisors in the study also said they lack knowledge about succession planning: 41% said they lacked knowledge about finding a successor, and 42% said they knew little about obtaining a valuation of an investment business.
Client service is also a key factor behind resistance to succession planning: 56% of respondents said they worried they would be leaving clients with a lower level of service, another 47% said they did not believe they will be able to find someone who will service their clients as well as they do.
The survey included responses from more than 500 US financial professionals who planned to retire within 20 years, had worked in the financial services industry for at least five years, owned at least half of their practice and generated at least $80,000 in gross income in the past year.
Another factor in lack of succession planning is that advisors don't see it as a matter of urgency.
“Personally I can see that advisors might consider a succession event to be too far into the future to consider," said Heapps. "However, it’s never too early to work on the critical first steps of obtaining a solid valuation for a practice and then considering how best to increase the value and build equity.”