Everyone eventually retires. And as there are many questions you should be asking your financial advisor about your own retirement planning, considering many of us will need financial advice long after we retire ourselves, there’s an important question to keep near the top of the list: What will happen to your account, to your retirement planning, when your financial advisor retires?
Financial Advisors: Do They Have a Succession Plan?
Planning for retirement is difficult. We spend years discussing our financial details with our advisor. We form a relationship. In many cases, it’s a bond built over decades. You have trusted and relied upon this person to guide your steps on the path to financial security, and you want to be sure your financial advisor has implemented a succession plan which considers your long-term needs as a client.
Your financial advisor is helping you plan for your future. It’s easy to assume they have their own exit strategy in place. They know the importance of planning ahead, right? Unfortunately, it seems some financial advisors and their businesses suffer the same fate as the cobbler’s children. Succession is a major issue in the investment industry today, for both its professionals and their investors.
Financial Advisors Want to Work Forever
A 2014 study entitled Key Trends in Wealth Management Business Practices interviewed almost 1,000 investment advisors in Canada and the United States. Sixty-one percent of the respondents were over 50 years of age. Reportedly 12 percent of the Canadian respondents indicated they would likely be retiring within five years. None of the respondents based in the US felt they would retire within five years. Not even those over 60.
“When asked about their plans for retiring, the sale of a practice ranked lowest on an investment advisor’s list of priorities (10 percent). Operating a business at a slower pace (31 percent), and living off accumulated assets (23 percent) ranked much higher. A shocking 38 percent of all respondents have no plans for retiring at all. Another 28 percent don’t plan to retire in the next 15 years,” (“Do Investment Advisors Need To Do a Better Job Planning Their Own Retirement?”).
Practice What You Preach
Increasingly, a good succession plan is a necessity for keeping existing clients and attracting new ones. “Advisors can’t change the inevitable,” says Tom Nally, president of TD Ameritrade Institutional (“The big benefit of having a succession plan”).
“They need to live by the practices they preach,” he added. “Clients want to work with someone doing the right things for their own legacy.”
Clients Need to Ask the Question
Despite these findings, many advisors do have the long game high in mind. Some feel the pressure needs to come from the clients themselves.
“Clients need to say, ‘My retirement is going to last 30 years. Where are you going to be?’,” states Paul Saganey, founder and president of Integrated Financial Partners (“What to Do When Your Financial Advisor Retires”, New York Times). Every one of Mr. Saganey’s advisor teams are required to have succession plans for both retirement and less predictable events, like dying or becoming disabled.
To help prepare for a new financial relationship, Rick Robertson, associate professor at Western University’s Ivey School of Business, recommends proactive measures. “It wouldn’t hurt to ask, even if the person doesn’t have much grey hair, do you have a succession plan? What would happen if something happened to you?” Mr. Robertson says (“Planning ahead: Someday, your financial advisor will retire, too”, The Globe and Mail).
What Can You Do?
- Ask the question: Does your financial advisor have a plan for their retirement?
- Ask if you can you meet their successor or the rest of the team.
- Examine your finances and treat this is as an evaluation opportunity. Maybe it’s time to move on to a new advisor.