In our recent webinar, Best Practices in Advisor Succession Planning, we explored industry trends, effective models, and the role of technology in financial advisor succession planning.

Our speakers included:

  • Arthur Osman, Consultant at Kehrer Bielan Research & Consulting
  • Kevin Fisher, President & CEO at NW Capital Management
  • Kristefor Lysne, President at Terrapin Technologies
  • James Pfeiffer, Marketing Manager at Terrapin Technologies

Arthur Osman presented strategies for financial advisor retention through retirement, including effective succession planning deal structures. Kevin Fisher shared with Terrapin’s Kristefor Lysne how his firm leverages Terrapin’s compensation technology to automate complex tranche systems used in trimming books and succession planning. Let’s take a look at some of the highlights.

The Population of Financial Advisors Is Shrinking

When looking at the number of FINRA registered representatives leaving and entering the industry, we saw a slight uptick in advisors entering the industry last year, up from 5% to 6%; however, approximately 7% of representatives left the industry. As a result, the total number of representatives continued to fall for the sixth year in a row, with a decrease of roughly 5,000 reps from 2020 to 2021. Since 2016, we’re seeing an average 1% decrease each year. If this trend continues, we can expect the total number of registered reps to drop below 600,000 by the end of 2025.

FINRA Total Registered Representatives

Shifting our focus to the state of retirement and succession planning, research from Cerulli Associates estimates that nearly 103,000 advisors will retire in the next ten years. Among advisors planning to retire in the next decade, 26% (more than 26,000 advisors) are unsure of their succession plan.

In our first webinar poll, 59% of respondents stated they are presently assembling an advisor succession planning program. 24% had fully implemented a program, and 18% were still looking into different models.

Has your firm instituted succession planning for your advisor(s)?

Competitive Succession and Retirement Packages

In light of this impending advisor shortage in the years to come, Arthur Osman built a sturdy case on the importance of offering competitive succession and retirement packages, especially since the financial institution channel has lagged behind the industry in solving for an advisor retirement plan solution.

“For the bank channel to remain competitive and retain top talent, they must begin to offer succession, sunset, and retirement packages that provide advisors with a clear end of career vision during the years leading up to retirement.”

Non-Competition Agreements are Ineffective

Within the financial institution channel, Kehrer Bielan Research & Consulting found that non-compete agreements are the most popular method used within advisor retention techniques — more so than other strategies such as deferred comp and profit-sharing. Non-compete agreements have typically been the most common strategy organizations use to protect the book of business in the event the advisor leaves. Yet, this is challenging to enforce in an industry where regulators and arbitration panels are increasingly siding with the advisor rather than choosing to protect the financial institution and enforce the non-competition agreements.

Elite Producers Require Elite Programs

According to Arthur Osman, most firms’ succession plan solutions are no-cost or nominal costs to the financial institution. As such, the compensation advisors receive under plans funded at these levels does not adequately compensate elite performing advisors and thus does not sufficiently address the attrition risk for elite talent. Financial institutions are recognizing and solving for the attrition risk with elite talent – seeking to ensure they “truly retire” when they leave the institution. Therefore, more institutions are developing an “elite advisor” retirement plan that ensures top performers remain with the institution through retirement.

Proving The Value to Leadership

In our final poll, “What is the biggest challenge your firm has with succession planning?” 63% of respondents felt that “proving the value to leadership” was their biggest challenge.

What is the biggest challenge your firm has with succession planning?

Kevin Fisher wasn’t surprised with these results. According to Kevin, what happens is that the institution feels that they own the client, not the advisor. While contractually true, it’s really the advisor who owns the relationship. No one wants that advisor to go to a different firm bringing their clients with them. But these advisors can make a significant amount of earnings, and there are substantial funds supporting these retirement plans. Sometimes advisors can earn as much as an executive team member or even more. This point of view from some executives isn’t the only challenge in proving the value of succession and retirement plans, but it does play a major role.

Arthur Osman added that leaders of wealth management programs need to help the institution understand that they’re trying to mitigate attrition risk. The best way to do that is to help the executive leadership fully understand the financial impact of that risk, not only on the wealth management program but on the entire institution.

Wrap Up

If you weren’t able to attend but would like to view the recording, click the link below.