For the past few years, financial advisors in the dealer channel have been among the eldest in Investment Executive’s Report Card series. That trend has continued this year and, in turn, a greater percentage of advisors surveyed said they have a documented succession plan in place.
In fact, not only are advisors in the dealer channel among the oldest surveyed, they are actually getting older. The average age of advisors surveyed rose to 52.6 this year, up from 50.4 in 2012. And among the advisors surveyed, 39.2% say they have a documented succession plan in place, a notable increase from 18.6% in 2012.
Having a documented succession plan in place is an important consideration for advisors, their clients and their firms as it ensures minimal disruption to clients in the event of an advisor’s early death or, more commonly, when he or she retires.
“[Succession planning] is critical, primarily for the sake of the clients but also for the businesses that many advisors have spent 20 or 30 years of their lives building up,” says Chris Reynolds, president and CEO of Mississauga, Ont.-based Investment Planning Counsel. “[Advisors] want to make sure that they maximize whatever value of the business they’ve built up. And they want to make sure that whoever takes over their book will operate with the same philosophy, will treat their clients with respect and will do all of the things that they would.”
Thus, it’s no surprise that firms are aware of their aging workforce. As a result, many have instituted programs to assist their advisors with succession planning by providing guidance, templates of business agreements and succession-related financing.
In fact, Montreal-based Peak Financial Group launched a program in the past year “with pretty good success,” says Robert Frances, the firm’s president and CEO, “in which we offer the evaluation of the books, we offer some contracting and legal review of what’s involved. We set up a database of buyers and sellers within our group – our own private eBay for advisors to hook up and connect with other buyers – and we also have financing arrangements.”
Peak’s succession database contains the names of advisors who want to buy or sell a book of business. When an advisor wants to begin to move out of the business, he or she contacts the firm for a list of potential purchasers, Frances explains: “We try to hook up a buyer and a seller within the network.”
Says a Peak advisor in Quebec: “The [firm] makes financial arrangements possible; an advisor buying a book can get help from Peak, which has arrangements with banks.”
Another firm with a robust succession program is Lévis, Que.-based Desjardins Financial Security Independent Network, which received the Report Card’s highest ranking in the “firm’s succession program for advisors” category, at 8.3. In particular, Desjardins has an accounting team and financing division that work with advisors to develop and implement a succession plan.
“We have a program in which advisors can sell or buy a book of business,” says a Desjardins advisor in Ontario, “and the firm helps evaluate and transfer the book.”
Adds Shawn Smith, Desjardins’ vice president, distribution, for the Ontario and Atlantic regions, in Toronto: “We offer financing that we provide to those advisors who are looking at buying other people’s books of business and bring them into their organization through the succession program.”
Still, although most dealer firms provide some level of support in the succession planning process, four firms saw their ratings in the category drop by at least half a point year-over-year despite no reported changes to specific processes. These drops could be attributed to the fact that firms’ messages are not getting through or that firms are not communicating their support properly – something at least one advisor at each firm in this year’s Report Card stated.
“I’m not sure if it’s a structured program, but I know there’s something there,” says an advisor in Ontario with Toronto-based DundeeWealth Inc., which saw its rating drop to 7.3 from 7.8 in 2012.
Similarly, an advisor in Ontario with Ottawa-based Independent Planning Group Inc. (IPG; 7.9 from 8.4) says: “I don’t know if the firm has any [support for succession planning].”
But it appears that IPG has put a significant amount of effort into promoting these services. “That was a surprise to me,” says Vince Valenti, the firm’s president, “to hear that [advisors aren’t aware of the firm’s succession program]. We’ve done countless sessions by webinars; we’ve done sessions for Advocis; we’ve gone across the province and we’ve talked about it. So, quite frankly, I take that as a challenge that we need to spruce up our communication to our advisors. We’re not reaching everyone, so we need to do a better job.”
A reason for this type of disconnection may be an advisor’s age, Reynolds says: “If you talk to a 40-year-old advisor, he may or may not know [about the succession program available; it] depends on what session he attended at one of our conferences. If you speak to a 65-year-old advisor, he definitely knows we have [a succession program].”
Although the percentage of advisors who have a succession plan is growing each year, more than 60% of those surveyed still are without a documented succession plan in place, a fact that several advisors attribute to their age. Says an advisor in Alberta with Winnipeg-based Investors Group Inc.: “I’m too young. A long-term plan could change.”
Still, other advisors are taking this topic more seriously. Fifteen advisors surveyed said that while they don’t have a documented plan in place, they do have one that isn’t completely formalized. In addition, there were 20 advisors surveyed who said they are currently working on a plan.
This is a good thing, Smith says, because “we’re going to see a lot of transition in the next five to 10 years.”
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