Wealth and Asset Management Service Spotlight
Advisor Succession Planning
Managing the retirement of Baby Boomer advisors
1
As few as 29% of advisors have a succession
plan in place or are ready for implementationi
“Cutting a check” for a retiring financial advisor is a common
practice that many wealth management firms employ to retain
client assets during advisor succession. The current operating model
enables this practice and allows advisors to sell their books to the
highest bidder without fully considering the impact to their firms.
Advisors are being presented with compelling book monetization
options that could influence the outcome of succession for their
current clients and their current firms.
The practice of trying to sway retiring advisors is not new;
most firms have processes in place to help minimize asset loss.
Nevertheless, these processes will be significantly tested by an
imminent demographic reality: A large population of Baby Boomer
advisors is nearing retirement. These advisors manage a significant
amount of assets, and are often the most profitable advisors within
a firm. This demographic shift will challenge firms that do not have
effective strategies to manage and mitigate the risks of advisor
succession.
Accenture believes that there is an opportunity for firms to not
only address the issue of Baby Boomer advisors retiring, but also
to transform their businesses to manage succession in a more
effective and sustainable way. By aligning the interests of clients,
advisors, and the enterprise, wealth management firms can develop
a succession model that is less disruptive to clients, aligns with
advisors’ motivations, and is more beneficial for firms.
2
Dimension 1
The Advisor Operating Model
The current advisor operating model is a
critical factor underlying the challenges
related to advisor succession. Most firms
maintain an entrepreneurial model, which
allows advisors to freely manage client
relationships. This model presents certain
difficulties to firms, including:
1. Sell and Move On
• Advisors with an entrepreneurial
mindset are motivated to monetize the
value of their client relationships
2. Merge and Stay Involved
• Advisors with deep client relationships
have significant influence over their
clients’ decisions
• Firms usually have limited insight into
advisors’ client business plans
While these factors have an impact across
the advisor-client lifecycle, they pose
particular challenges as advisors near
retirement. Recent findings from Fidelity’s
Inside Track Conference reinforced this
facti, and summarized advisors’ retirement
options into three general categories:
3
An advisor monetizes his or her book of
business by selling to another advisor who
may or may not be within the same firm.
This could be disruptive for clients who
are not fully informed of the transition.
An advisor partners with a complementary
practice, which could mean that the firm
loses the client through an external merger
or it could result in a lower level of service
for the client.
Figure 1. Moss Adams: Advisor
Succession Plans
Moss Adams - 2010 Financial
performance study of advisory firms
29%
71%
3. Internal Transition
An advisor grooms members of his or her
practice to take over, which may appear
to be the most positive option for the
firm. However, this could lead to a loss
of momentum in client growth.
Exacerbating the advisor succession
challenge is the fact that firms have
limited visibility into the retirement plans
of their advisors, particularly where
advisors have not fully developed their
own strategies.
Defined or implemented a
succession plan
No defined or implemented a
succession plan
Studies show that in most cases advisors
are not planning for succession. According
to a Moss Adams Studyii, only 29% of
advisors have defined or implemented a
succession plan.
Furthermore, even with a basic succession
plan in place, advisors may not know who
will inherit their books. A recent Cerulli
study indicated that 59% of advisors who
are within five years of retirement don’t
know who will purchase their practicesiii.
Although firms are aware of the
challenges inherent to the current
operating model and the threats posed
by limited and undeveloped advisor
succession plans, the majority have
not put a comprehensive or deliberate
strategy in place to cultivate internal
successors beyond reactionary strategies
like “cutting checks.”
Figure 2. Cerulli: Projected buyer of practice by years to retirement, 2011
Nearly 40% of advisors either do not have a solidified buyer or will have their clients reassigned
Buyer
<5
5 to 10
11 to 20
> 20
All advisors
59%
22%
17%
15%
21%
Junior employee or employees
0
19
31
7
20
Existing partner
0
31
9
16
20
Designated non-partner successor
30
9
13
16
13
My firm will reassign my clients and i will
receive compensation
9
3
13
24
11
Family member
0
3
4
14
5
My firm will reassign my clients and i will not
recieve compensation
0
10
<1
1
5
Other
0
0
8
5
4
Known outside buyer
2
1
5
2
2
Unknown outside buyer
4
Dimension 2
The Demographic Impact
Intensifying the challenges presented
by the current wealth management
operating model is the reality of an
impending demographic shift in the advisor
workforce: a large number of Baby Boomer
advisors are approaching retirement age.
Recent research shows that the average
age of advisors is approximately 50 years
oldiv in the US, and:
• 21% of the workforce is over 60
years oldv
• Less than 25% are under 40vi
• Only 5% of advisors are under 30
years oldvii.
The demographics of the workforce are
not only a problem for the U.S. wealth
management industry. According to
Advisor.ca, the average age of an advisor
in Canada is 54 years oldviii.
The impact of this demographic trend is
exacerbated by the reality that firms have
to manage a retiring workforce while also
building their next generation of advisors.
A Pershing Advisor Solutions study finds
that of the 315,000 advisors and brokers
currently working in the U.S., 12,000 to
16,000 will retire every year for the next
decade. The result is that the financial
advisory business will need 237,000 new
advisors in the next ten years to maintain
its current headcount.ix
Figure 3. Cerulli, Advisor age by age
range, 2012
Advisor age by range
4%
17%
18%
The impact of a large number of older
advisors is further amplified by the fact
that advisors over the age of 60 manage a
majority of firms’ client assets. According
to Cerulli, advisors over 60 control $2.3
trillion of assets.x
Not only do the advisors facing
retirement manage the majority clients’
assets, but they also often manage the
most valuable books.
4%
32%
25%
<30
<40-49
<60-69
<30-39
<50-59
>69
Figure 4. Cerulli: Quantifying succession, 2Q 2012
Cerulli estimates the assets controlled by advisors who are older than 60 years of age at $2.3 trillion
Channel
Advisors approaching
retirement
Assets per advisor
($ millions)
Assets in transition
($ millions)
Team/Ensemble
Bank
1,070
$31.0
$33,183
41.70%
Wirehouse
13,237
94.2
1,246,929
72.7
Regional
3,272
48.0
157,070
57.9
IBD
29,443
17.7
521,137
72.2
Insurance
11,140
4.8
53,473
60.0
Dually registered
2,948
63.7
187,763
69.1
RIA
5,084
63.0
320,314
58
All advisors
66,212
34.8
2,304,163
64.6
5
Accenture’s “Advisor Lifecycle” model,
shown in Figure 5, demonstrates
the relationship between tenure
and competency. It shows a positive
correlation between the time an advisor
has spent at a firm and the value of the
advisor to the firm. As such, the pending
demographic shift will have significant
results, as firms are at risk of losing their
most valuable advisors – those that have
passed the inflection point and produce
maximum value for their firms.
Figure 5. Accenture Advisor Lifecycle
Advisor lifecycle Current vs. Potential performance curve
Exhibited job proficiency in %
Potential performance
Current performance
This trend is not only problematic for firms;
it is also extremely disruptive for clients.
There is a greater risk of clients leaving the
firm when advisors leave or retire.
Wealth management business models
and advisor succession plans will not
change overnight – the current advisor
model is largely entrenched within the
industry and is reflected in performance
management and compensation practices.
However, to retain client assets and
protect firm profitability, it is critical that
firms address this demographic shift and
put plans in place to effectively manage
advisor succession.
Time
Recruit
Time to
proficiency
Enhance
performance
Retain top
talent
6
Addressing the Issues
There is No “One-Size-Fits-All” Solution for Firms
Firms are generally aware of the problems
around advisor succession; yet, many
have not enacted a deliberate strategy to
tackle the issue. The methods commonly
employed are reactionary and not
comprehensive. While these tactics
may retain assets in the short-term,
long-term client attrition remains a risk.
Furthermore, considering the scale of
the upcoming transition, firms cannot
realistically afford to stick to traditional
methods. Firms can begin to address
advisor succession challenges with some
simple and pragmatic strategies, such as:
• Having candid discussions with advisors
nearing retirement age to understand their
options and goals for their client books
• Presenting advisors with retirement
options that meet their goals, while still
being beneficial to the firm
• Helping advisors navigate the
various choices and then assisting with
implementing the most suitable options.
7
These strategies help to ensure visibility
into advisors’ succession plans and
control over the entire succession process
which will minimize risk to the overall
client experience.
Firms that have developed loyalty and
“stickiness” with their clients and advisors
over the lifecycle of their relationships,
and not just at the advisor succession
milestone, will be best positioned to have
meaningful retention success. Prioritizing
advisor satisfaction and addressing the
reasons that advisors leave a firm, either
during or before succession, will also
help firms come out ahead during the
impending demographic shift.
According to Accenture’s Generation D
Advisor survey, advisors cited these top
three reasons for leaving their firms:
1. “Needed better marketing support”
2. “Didn’t have the tools needed to meet
clients’ needs”
3. “Losing clients to other firms that
provided better resources”
Each of these reasons indicates that a
firm was unable to build a strong enough
relationship with its advisors or did not
provide sufficient foundational support
for its advisors to grow their businesses.
Correcting these issues will not only
increase advisor satisfaction, but also
result in a better overall client experience.
Both are critical components of a longterm strategy that is focused on aligning
the interests of firms, advisors and clients.
This multifaceted alignment is not
easily achieved. However, we believe
that wealth management firms can
proactively address advisor retention
and better position themselves as
advisors near retirement by addressing
the following levers: 1) Capabilities, 2)
People, and 3) Branding.
Plan today for the assets you want to retain tomorrow
Capabilities: Building a compelling
value proposition
Wealth management firms operate
within a highly competitive environment.
However, a firm’s positioning and the
strength of its advisor workforce can
be greatly enhanced by best-in-class
capabilities. These foundational elements
empower advisors to grow their clients’
books and enhance the overall value
proposition for both clients and advisors
and contribute greatly to their loyalty and
“stickiness” to their firms.
For example, building comprehensive
analytics capabilities can distinguish a
firm from its competitors. The firm is seen
as innovative and uniquely positioned
within the industry. Comprehensive
Customer Relationship Management
(CRM) tools, such as data management
and mining capabilities, are an example of
technological capabilities that enable an
advisor’s business and differentiate a firm
from its competitors.
These tools, when adopted by the
advisor sales force, provide actionable
customer insights and dynamic portfolio
performance analytics which help
advisors tailor solutions to their clients.
They also allow the firm to have deeper
insights into their clients’ preferences
which can increase the likelihood of
retaining their assets.
Clients also benefit from their firm’s focus
on superior technological capabilities in
the form of sophisticated self-servicing
options that enable them to effectively
manage their money directly.
People: Enabling collaboration
and teaming for stronger client
relationships
A critical strength of any successful
wealth management firm is its people.
In the current advisor-centric operating
model, one of the most important people
components is the independent advisorclient relationship. However, in response
to the upcoming demographic shift, it
makes sense for firms to reframe this
dynamic. Firms can seek to recast the
advisor as a member of a comprehensive
team. In this scenario, clients benefit
from the support of multiple advisors in
the firm while retiring advisors are also
provided with monetization options for
their books of business.
This team-centric model better positions
the next generation of advisors and builds
a stronger link between the firm and the
client through multiple relationships and
touch-points. For example, in the private
banking industry, the client receives
additional services in parallel to that
of the financial advisor, such as estate
planning, tax planning and legal support.
Supplemented by investments in scaling
up these teaming capabilities, firms will
be better positioned to meet the needs of
their clients. When effectively employed,
this approach can drive both advisor and
client stickiness to the firm. From the
advisor perspective, the team-centric
model has the potential to support the
entrepreneurial interests of advisors,
while simultaneously enabling them to
more efficiently, effectively and profitably
serve their clients’ needs and best
interests. From the client’s perspective,
the likelihood that a client stays with the
firm upon his/her advisor’s retirement
would increase since he/she now has a
relationship with a team at the firm rather
than with just an individual advisor. Firms
that have proactively invested in their
people are more likely to come out ahead
during the advisor succession process.
Branding: Building reputation
and affinity
Both innovative capabilities and a
comprehensive teaming model contribute
to, and are reinforced by the strength
of a wealth management firm’s brand. A
comprehensive and effective branding
strategy can differentiate one firm from
another as well as increase client and
asset retention opportunities. Developing
and effectively communicating a firm’s
brand or unique value proposition – likely
grounded in best-in-class capabilities and
people – can help a firm end up on the
winning end of any transition.
Brand is especially important when
advisors look outside the firm to
monetize their books as well as when
firms rely on a defensive strategy
to retain or regain assets. Strong
brand affinity can ease this process,
encouraging clients to maintain
loyalty to the firm, independent
of their advisors.
In addition, the digital domain and
social media provide firms with an
opportunity to reach diverse customers
and communicate their unique value
proposition. Digital tools can also enhance
the connection between advisors and
their clients while providing consistent
and compelling messaging about the
firm’s value proposition. By providing
alternatives to traditional channels of
communication between firms and their
clients – which hinge on the advisor as
intermediaries – firms are able to build
stronger direct relationships and affinity
with their clients.
8
Conclusion
Wealth management firms will take different
approaches to managing advisor succession and
client retention
Wealth management firms today face changes in their workforce
that must be addressed. They will be challenged by the reality that
a large number of an aging demographic, their most high-value
advisors, will be nearing retirement. In addition, their traditional
advisor operating model is grounded in advisors owning direct
exclusive relationships with their clients. In light of these conditions,
all firms will have to make some level of investment in addressing
advisor succession. Some will be more proactive, while others will
take a “wait and see” approach.
To begin addressing the advisor succession challenge, firms should
take some immediate action; this includes having candid discussions
with advisors who are close to retirement to gain a better
understanding of their objectives, and developing succession plans
and processes that are beneficial to clients, advisors, and firms.
However, some firms will use advisor succession as an opportunity to
address some structural issues in their operating models. By adopting
an approach that balances strategies related to people, capabilities,
and branding, firms can create a more robust operating model that
produces sustained business outcomes in the face of the looming shift
in the advisor workforce.
9
Notes
i. http://www.fidelity.com/inside-fidelity/
using-an-advisor/fidelity-successionplanning-program
ii. Developing a Sustainable Business and
Succession Plan: An Independent advisor’s
guide
iii. The Cerulli Edge: 3Q 2012, Issue #36
iv. http://www.fa-mag.com/fa-news/5932advisory-industry-faces-talent-shortage.
html
v. http://www.fa-mag.com/news/tibergienold-advisors-driving-young-out-of-thebusiness-10936.html
vi. http://www.fa-mag.com/fa-news/5932advisory-industry-faces-talent-shortage.
html
vii. http://www.fa-mag.com/news/
tibergien-old-advisors-driving-young-outof-the-business-10936.html
viii. http://www.advisor.ca/my-practice/
succession-planning-securing-yourfuture-1579
ix. http://www.fa-mag.com/fa-news/11229tibergien-old-advisors-driving-young-outof-the-business.html
x. The Cerulli Edge: 3Q 2012, Issue #36
10
Contacts
About Accenture
Alex Pigliucci
Accenture is a global management
consulting, technology services and
outsourcing company, with approximately
259,000 people serving clients in more
than 120 countries. Combining unparalleled
experience, comprehensive capabilities
across all industries and business functions,
and extensive research on the world’s
most successful companies, Accenture
collaborates with clients to help them
become high-performance businesses and
governments. The company generated net
revenues of US$27.9 billion for the fiscal
year ended Aug. 31, 2012. Its home page is
www.accenture.com.
[email protected]
+1 917-452-4978
Kendra Thompson
[email protected]
+1 416-641-4004
Contributors
Karime Abdel-Hay
Alistair Clark
Farah Lalani
Kathryn Whitelaw
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