Financial Planning

Too Many Financial Advisers 'Die with Their Boots On'

Does your financial adviser have a succession plan in place? Many don't, and that’s bad news for their clients. Here's what investors should do to protect themselves.

A new proposed fiduciary conduct standard would require financial advisers to treat their customers and clients with “utmost care and loyalty.” But what does that actually mean, especially in the context of a rapidly aging financial services industry with many advisers inclined to “die with their boots on” rather than retire?

Reluctant retirees work well past 65

Although the average financial adviser is 58 years old, only about 30% have established formal business succession plans. Some say that given the nature of the work, many advisers can work well past typical retirement age, nurturing client relationships with long lunches and a round of golf. But, does this type of work ethic actually hurt the very clients they pledge to help?

With no motivation to retire, aging financial advisers may work part-time, doing only 25% to 50% of the work they once did. In some cases, clients are still charged for 100% of the work, which at a minimum is questionable, and worst case could arguably be seen as a breach of fiduciary responsibility.

Perhaps more egregious is if an aging adviser is deemed to have diminished mental capacity. Recognizing the risks, in 2016, Securities America launched a multi-departmental effort to watch for potential warning signs among financial advisers. Representatives monitor adviser activities and listen closely when speaking with advisers for indicators their decision-making ability may be deteriorating. If they suspect a problem, it is reported to the Financial Investigation Unit for follow-up.

It’s clear that even with the best of intentions, an aging financial adviser could be harming his/her clients, his/her practice and him/herself. With a duty to care for clients, it’s vital that financial advisers have a plan to transition the business and their clients.

Clients should prepare for the worst-case scenario

As a financial adviser reaches retirement age, his/her clients may begin wondering if their assets will be well-cared for. This is a sensitive topic to bring up to an adviser with whom you may have a close relationship, however, it’s wise to consider if it’s in your best interest to continue working with them. Clients should prepare for the worst-case scenario: that they will be left without their trusted adviser and forced to find an alternative solution.

The first step to raising this concern with your adviser is to look for signs that she/he may be retiring soon. Is your adviser taking the time to walk through financial planning with you, such as reviewing your accounts to ensure beneficiaries are correct, and making sure you will have enough money saved to retire comfortably? Or is she/he spending too much time on the golf course to give you the proper attention? Your adviser should be navigating you to achieve the lifestyle you’ve been dreaming of in your golden years.

When advisers work well past traditional retirement age, they will often stop working full time, go into the office less, and only communicate with clients when it’s convenient for them. Has their availability and accessibility decreased significantly? If so, now is the time to ask, “If you were to retire, what would happen to my account?”

Lack of succession planning could drive RIA consolidation

According to a recent study by Cerulli Associates, the lack of succession planning within the aging financial adviser population may drive Registered Investment Advisor acquisitions over the next decade that involve more than $2 trillion in client assets. However, while two-thirds of RIAs anticipate a change of ownership within five years, only 36% said they have begun the process to ensure a smooth transition to retirement. Smaller firms and solo practitioners may be in even worse shape. Only 13% of firms with less than $50 million in assets under management have a succession plan, compared with 60% of firms with more than $500 million in AUM.

Statistically, the chance of your financial adviser not having a succession plan in place is overwhelmingly high. To avoid an unfortunate situation down the road, it’s recommended that clients do as much research as possible before entering into a business relationship with an adviser. When doing your research, look for the following qualities:

  • They are easily accessible and responsive.
  • They have the same ethical beliefs as you.
  • They understand your financial goals.
  • They are highly trained and educated.

Once you have narrowed down your search, ask the adviser whether they have a succession plan in place, such as having a successor that will take over their book of business if anything were to happen. Treat this as an evaluation opportunity to examine your finances, evaluate your goals, then match them with the adviser that is most appropriate to your needs.

OK, Boomer, it may be time to retire

Most advisers without a succession plan recognize the potential perils of not having one, but without motivation to retire, advisers may feel they have plenty of time to plan, even when they are beyond the typical retirement age. It’s time for the aging army of financial advisers to follow their own advice when it comes to their businesses … for their clients’ sake, as well as their own.

Furthermore, clients should take the appropriate steps and ask the necessary questions to ensure their financial adviser has a succession plan in place. It’s also important to note that these steps should be taken even if your adviser is nowhere near retiring. A succession plan is essential for all advisers, no matter what stage of life they’re in.

About the Author

William H. McCance

President and CEO, Trust Advisory Group

William H. McCance serves as the Chairman and President of TAG Group Inc. (https://trustadvisorygroup.com/), a diversified financial services company owning a broker dealer, a Registered Investment Adviser and an insurance GA.

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