Heed Your Own Advice: Plan

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Research released yesterday from the Financial Planning Association and Janus Henderson titled, “The Succession Challenge 2018: Why Financial Advisers Are Failing to Plan for the Inevitable,” showed that financial advisers aren’t doing all the things they’re telling their clients to do when it comes to succession planning.

The research found that the number of financial advisers who reported having a formal succession plan in place has actually decreased from 28 percent in 2015 to 27 percent in 2017.

The research brought to light some reasons behind why advisers aren’t planning properly and also some interesting findings on how advisers in big firms differ in their succession planning from advisers in smaller firms.

Why The Lack of Planning?

There are several reasons why advisers are reluctant to plan for the next stage, the research found. Here are the top areas that presented the biggest challenges to succession planning:

Strategic. Fifty-one percent of planners said the biggest challenge was finding the appropriate successor or partner.

Michael Futterman, assistant vice president of Janus Henderson Labs professional development team, said this was a surprising aspect of the research findings—that advisers were not focusing on valuation but on finding the right successor.

“While valuation remains an important aspect of succession planning, it’s a math equation,” Futterman said. “The more challenging question of who [is the right successor] is one that cannot be answered with math.”

Personal. Twenty-two percent of advisers said personal concerns were an issue. This could be because it’s not easy facing retirement. Maybe planners are scared or don’t know what they want to do in retirement. Maybe they’re concerned about their health, or that they’ll be antsy and restless.

“While finding a successor is clearly an important challenge, the data suggests that personal challenges play a big role for advisers when thinking about the future,” the research report said.

Structural. Fifteen percent of advisers said they weren’t planning for business succession because of reasons like structuring the business to maximize value, the research found.

Mechanical. Twelve percent of advisers said the mechanics of developing and executing a succession plan was their biggest challenge.

Bigger Firms Plan Better than Smaller Firms

The research found that 60 percent of advisers in firms that have $500 million or more in assets under management had a formal succession plan in place.

“I think that these advisers have grown because they see their business as a business—and they treat it accordingly—or at least in greater percentages than those that might not have been successful, Futterman said. “They are interested in leaving a legacy and providing support for clients.”

However, only 13 percent of advisers in firms with less than $50 million in assets under management has a formal succession plan in place.

“The smaller adviser is likely struggling and does not see a horizon where succession planning is important or imminent,” Futterman said.

Just Do It

It all boils down to this: you simply need to start planning, no matter what type of challenge you’re facing and no matter whether you work at a large or small firm.

“Plan early, often and with options in mind should your circumstances change,” Futterman said. “If you don’t take control then someone else or something else will.”

Editor’s note: Download the Janus Henderson Investors and FPA research here. If you’re looking for additional resources to help you with succession planning? Click here for more from Janus Henderson Investors. Also, Michael Futterman will present an FPA webinar titled “The Succession Challenge: Why Advisers are Failing to Plan for the Inevitable” at 2 p.m., EST on May 30. Register for that webinar here. Stay tuned to FPA’s Research and Practice Institute for two white papers diving deeper into the research findings in June and July.

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Ana Trujillo Limón is associate editor of the Journal of Financial Planning and the editor of the FPA Practice Management Blog. Email her at alimon@onefpa.org. Follow her on Twitter at @AnaT_Edits.

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