3 Key Elements for Successful Succession Planning
Capturing Shifts in Investor Base
The investor landscape is also evolving. Millennials are entering prime wealth-building years, while Gen Z is emerging as a new investor demographic. This shift necessitates equipping the next generation of advisors with the skills and knowledge to capture and serve these client needs. As seasoned advisors plan for retirement, ensuring that their successors are equipped to navigate this changing landscape becomes crucial.
Research from the CFA Institute and FINRA Foundation indicates that more than half of Gen Z holds some form of investment, partly due to exposure through social media and investing apps. Given their inclination toward technology, younger advisors are well-positioned to capture this demographic. By engaging them on these platforms and showcasing the personalized value of advisory services, these junior advisors can secure a loyal client base for years to come.
Evolving demographics demand swift action from financial advisors. Modernizing tech platforms unlocks personalized service, innovative tools and 24/7 access. Similarly, equipping new advisors to discuss values-based investing, reflecting their goals and preferences, aligns with younger generations’ priorities.
By coupling the institutional knowledge of older advisors with the fresh perspectives of junior investors and upgrading their tech stacks, advisory practices can maximize the value of their business before selling or passing on ownership.
Scaling Engagement in a Shrinking Pool
Practices must also consider how to scale their client experience models to serve more clients than advisors have previously, given the anticipation of fewer advisors in the market. While the average advisor typically serves 120-150 households, that number may need to increase to 200-250 households. To compensate for this shift, advisors may need to leverage other partners, technology or outsourcing.
While many may fear that technology will take the human element out of advising, in practice, successful implementation can relieve advisors and their staff of tedious tasks. That can enhance human connections by freeing up more time for them. From fintech supporting portfolio construction, risk tolerance assessment and performance reporting to tools aiding in business management, such as advisory fee billing and compliance software, advisors have options to consider when assembling a tech stack to maximize the value they deliver to clients.
Additionally, outsourcing can reduce complexity and stress. Outsourcing the day-to-day management of all or a portion of clients’ assets gives advisors the bandwidth to deliver on the other services their clients need. Plus, according to AssetMark’s outsourcing study, advisors who do so experience higher career satisfaction and quality of life.
Advisors could also consider a sell-and-stay model, in which they sell their practice but remain with the buyer. This allows advisors to simplify their workload, receive benefits, maintain income, capitalize on upside potential and “take chips off the table.” They could also serve as valuable mentors for young advisors, providing institutional knowledge to complement their fresh perspectives.
With a substantial portion of advisors nearing retirement and a modest influx of new talent, proactive planning is imperative for the industry’s continued vibrancy. By embracing collaboration, adaptation and mentorship, financial advisors can navigate the succession gap with resilience, ensuring a seamless transition and a prosperous future for clients and practitioners alike.
Matt Matrisian is a senior vice president and head of client growth at AssetMark, a turnkey asset management platform for financial advisors.
