How senior financial advisors can transition clients to younger staff

The financial services industry continues to grapple with the issue of succession and the decline of advisor talent as a result of aging, retiring advisors and the scarcity of experienced advisors. Twenty-six percent of the advisors retiring in the next 10 years have no succession plan, according to Cerulli Associates. And, with this group accounting for $1.8 trillion of assets, there’s a significant opportunity for younger advisors to win new business, as well as a major concern of client attrition.

In general, there are three major succession paths available to advisors:

• An internal succession from one advisor to another.
• Many advisors decide to merge with another firm.
• And others do an outright sale of the business.

Each strategy takes time to be successful, and all have unique merits and demerits. Selling the business usually takes at least 18-24 months to find an external buyer, negotiate a deal and execute the transition plan. And internal transitions should be thought of as a journey—not an event—where preparation is important. The median time frame for grooming a junior advisor is five years, according to research from Cerulli Associates and Investment and Wealth Institute.

Most commonly, Cerulli reports, 44% of the advisors are preparing for an internal transition to junior advisors. Compared with other options, owners are nearly four times more likely to prefer an internal succession.

Preventing high client attrition

In any circumstance, advisors who fail to implement a succession are at risk for high client attrition and losing prospects due to concerns that the advisor may sell or retire in the near future with no potential successor lined up. The majority of advisors expect to retire in their mid-60s or shortly thereafter. Even so, it’s difficult for many to walk away from the practice, which delays the transition process and implementation of a proper succession plan.

Early planning and communication of a well delineated succession plan between senior and junior advisors is the first key to success. It’s important to address emotional aspects of client transition and negotiate a potential succession plan based on clear terms, including post-transition roles and responsibilities. It’s also valuable to bring the successor into client meetings early on to smooth the transition process.

No matter which transition path senior advisors take, internal or and external, they should proactively communicate with clients to keep them engaged and reduce the likelihood that they will move their accounts to another firm. For many advisors, the initial step is to bring on a junior partner who can get involved in the broader prospecting activities of the firm. The senior partner remains focused on financial planning and investment solutions that suit the clients and work with the junior partner to make the transition.

Strategies for transition

As senior financial advisors delegate responsibilities, younger advisors can alleviate some of the pressure on seniors. They can focus on small- to medium-sized clients and answer questions related to investments and financial planning, rather than being expected to build a large client base right from the beginning. It’s critical to have a firm philosophy and structured career path around the succession plan to avoid disagreement and related client attrition.

One thing advisors who’ve made successful transitions have done is create a co-vision and include the junior advisor in the goal-making process of the firm. Younger advisors often connect with the next generation of aging clients. It helps these clients to know someone who is familiar with their perspective is available to discuss financial goals and options.

Research shows that next gen investors place far more significance on technology, information, transparency and client experience than older generations. New technologies can help advisors better execute on these criteria. However, for younger advisors, it is also important to have face-to-face meetings and collaborative planning toward goals-based wealth management, along with delivering real time information.

Succession planning is not just about the advisor

The thrust of the matter is success planning is all about the clients’ best interests. Financial advice is predominantly a relationship-centric business. For the transition plan to succeed, it’s important for the young advisors to show a high level of client commitment to clients, their families and financial plans for the future.

Having confidence and demonstrating competence are necessary for new financial advisors to gain credibility and trust with clients.

• Sharp appearance – Young advisors tend to exhibit more confidence with sharp appearance and presentations that are embedded in technology.
• Attitude to learn – It’s important to exhibit a willingness to learn from senior advisors and gain confidence through continuing education and training. Doing so translates into better, well-informed pitches and thoughtful presentations to prospective clients.
• Gain confidence with younger clients – Young financial advisors tend to connect easily with Millennials, Gen X and Gen Y. These generations are often overlooked by senior advisors in favor of larger clients, so younger advisors can gain experience by building relationships with young clientele.
• Analytical focus – Advisors who are more analytically focused tend to show credibility with older clients as well as prospective clients.
• Technology driven client experience – As technology redefines the client experience, tech savvy advisors gain more credibility when they can demonstrate a seamless client experience.

Knowing there will continue to be a need for financial advisors, and a large number who are expected to retire in the next decade, the outlook is promising for younger advisors who are ready and able to step up.

Saumen Chattopadhyay, CFA, CPA, is Chief Investment Officer, OneDigital Retirement + Wealth.