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Cannon Financial Institute

Are financial advisors bad at planning their own exits?

Do you know who is going to take over your books when you retire? For financial advisors, it seems to be the classic "Do as I say, not as I do" problem - you've spent decades advising others on retirement and succession planning, but you haven't taken the time to figure things out for yourself.

Thousands of advisors across the country are in this predicament. They want to dive head first into retirement, but their business - and perhaps their bank accounts - aren't yet ready. Here is how a financial advisor can shore up their own succession and retirement planning while there is still time:

Age gap exists in financial advising
Financial advisors can help diverse demographics of clients, but the advisors themselves? Well, most are nearing retirement. According to an Accenture report, 21 percent of the advisor workforce in the U.S. is over the age of 60. Only 25 percent are younger than 40, and that figure dips to only 5 percent when looking at advisors under 30 years old.

Suffice it to say that the average age of a financial advisor is a lot closer to retirement-age than college-age. This creates problems for a few reasons:

  • Dearth of experienced advisors - You may have to find the right successor for your firm. This will likely mean choosing someone a lot younger than you who has limited experience, since few experienced advisors are in the market for a new job.
  • Client-advisor turnover - Clients will typically outlast their advisors on the road to retirement, which means the average client will work with multiple advisors during their lifetime.
  • Need for planning - Most advisors are just a few years away from retirement. This thrusts retirement and succession planning into the spotlight.

Know your options
As you begin to plan your exit strategy, you'll need to know your options. Here are four of the most common, effective choices:

"You have options to plan your succession."

1. Working retirement
You can ease your way into retirement by working at the same time. For example, you can begin to reduce your hours per week years in advance, focusing instead on a work-life balance. Leading up to retirement, you could work as little as 10 hours per week in the office, perhaps complementing that with 10 hours of remote work. The rest, well, that's up to you. 

2. Groom a successor
A smart option today is to start grooming a successor for your firm early on. The best course of action is to hire a junior advisor years in advance who you want to fill your shoes. Over time, you'll be able to see their skills, learn what they can do and know if you can trust them with your book. This strategy is basically building a go-to successor into your firm, so whenever you are ready, you've got the answer right in front of you.

3. Sell and retire
Another option is to simply cut ties. Perhaps you've given all you have to your business and are ready to retire. Instead of looking for a direct successor, you'll be looking for a buyer of your book. It could be someone inside your current firm, but more likely it will be an outsider. The biggest impact here is on your clients, but you'll have the out you need to smoothly enter retirement.

4. Merge and retire
Finally, you have the option to merge and retire. Like selling, you can get out clean. However, unlike selling, you retain more control over the direction of the firm. Merging allows you to choose a like-minded firm to pair with. It could share similar values and clients as you. Merging is beneficial for your clients, since they know they could be working with a firm that is like their old one.

Keep the clients in mind
This last option - merging - brings us to an interesting point. What about the clients? If you are ready to retire, that means you've spent decades in the industry, possibly with many of the same clients. You could have built your firm from the ground up, or even moved firms several times and taken your clients with you.

The fact of the matter is that you have deep ties to your clients. You don't want your succession plan to leave them dangling in the wind. This is why choices like merging or a working retirement are better for clients than an outright sale. You can stay involved, work with them and another advisor at the same time, and smooth out the transition in the process.

Your succession plan - and retirement - are emotional topics. Choosing the right strategy isn't just about the money, but about doing what is best for you and your clients. Don't forget that while planning your exit. 

Are you ready to retire?
With all this mind, it begs the question: "Are financial advisors bad at planning their own retirement?" Succession planning is difficult - few people know that better than advisors - and it can be tough to leave a business you love behind, even if you've got the money to do so. 

"Many advisors are wary of the pitfalls of retirement."

A recent survey sponsored by CRM firm Maximizer, called "Key Trends in Wealth Management Business Practices," found that none of the U.S.-based financial advisor respondents - out of 903 in total - believe they will retire in five years or less, even those over 60 years old. When asked about which options were most enticing, however, the popular answer was to continue the business at a slower pace, followed by a full retirement.

Perhaps unsurprisingly, many advisors are even wary of retirement using their own assets. Most have seen the pros and cons of retirement and helped plenty of clients navigate these waters. As a result, they understand how tricky the process can be.

Plan ahead and start early
So then, what can you do? Whether you are worried about your personal finances or unwilling to leave behind your business and your book, plan ahead and start early. 

Time will help you groom a successor, build your personal asset portfolio or find the right buyer or partner for your firm. No matter what you choose, starting years in advance will make the transition smoother for everyone involved. And, above all else, pretend you're a client and take your own succession and retirement planning advice.

To learn more on this topic, register for our Cannon Trust I course.

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