The topic of continuity/succession planning is on everyone’s minds these days. Aggregators see an opportunity to acquire additional assets. Young advisors see an opportunity to grow their firms. Custodians want to ensure those assets remain in their custody despite any change of control. Pinnacle Advisor Solutions is in business to support the independent RIA, so our goal is to enable independent RIAs to address their continuity/succession planning problem without forfeiting their independence.
We stumbled upon this issue from three directions. First, Pinnacle Advisory Group was in the process of addressing its own succession planning. Second, Pinnacle Advisor Solutions, a division of Pinnacle Advisory Group, was created to support independent RIAs and learned of their need for a better continuity planning solution. Third, Pinnacle Advisor Solutions speaks to hundreds of advisors every year in the search for qualified advisors to join its Strategic Partnership program.
What did we learn? Advisors don’t want to sell; they value their independence too much. They don’t want to retire; they have built strong relationships with their clients and want to work with them to the end. But to do that and to ensure their clients and loved ones are cared for upon death or disability, they need to put a continuity plan in place.
In answer to their problem, we have created a continuity/succession planning solution called PRISM. Simple. Easy to establish. And effective. We have been on the road since late last year talking about the issue and a variety of solutions including PRISM. Recently we were invited to speak on a webinar panel by RIA Match and to speak to a 900-plus member Succession Planning for Advisors LinkedIn group. We thought we’d share with you what we learned from the webinar registration questions and subsequent conversations we have had with participants in the second case.
- The webinar registered 48 advisors. We excluded from our analysis the largest advisors who characterized their practices as greater than $1 billion in AUM. That left 43 advisors in our sample. These attendees represented all areas of the country (East 44%, Midwest 23% and West 30%). They largely represented advisors who characterized themselves as solo practitioners (37%) or small ensembles (58%).
- Polling from the RIA Match webinar tells us that advisors want to identify a continuity/succession planning solution to care for clients (69%) and family (25%). Only 6% listed money as the driving factor.
- The vast majority of these advisors want to identify a solution that will allow them to remain independent (67%). Only a small number have any interest in selling (10%). Of that number, only 5% actually want to sell. The balance want to continue working as a W2 employee post-sale – probably because they do not see an alternative solution. The balance have no intention of doing anything.
- Only 18% have a formal succession plan. More than 55% have no plan at all and another 26% have an informal plan — which our experience has found is often little better than no plan at all from a practical standpoint.
- Advisors have a much more realistic view of valuation than we expected. More than 45% believe their practice is worth between 2.0 – 2.5x revenues; 20% believe their firms are worth less than 2.0x and 20% believe their firms are worth between 2.5-3.0x. Only 15% believe their firms are worth more than 3.0x. These multiples tell us that our PRISM is priced right.
- So while the goals and expectations of advisors seem reasonable, the RIA Match polling tells us the reason so few have a solution is the challenge in identifying a firm to partner with (42%); or in finding the time to identify a partner and negotiate a succession plan (25%); or in understanding the legal issues involved (18%). In other words, the process is too complicated and time consuming and may not result in an agreement after all the effort.
If you would like to learn more about the common issues advisors are facing that our PRISM program can address, please take a moment to review our 2/15 article titled “Eight Advisor Stories that Demand a Better Continuity Solution”. Or if you want to better understand what the key driver of most decisions comes down to, check out our 2/28 article “Don’t Sell Your Practice, Redesign It! – Three Stories from the Field”. And if you would like to learn more about our solution – PRISM – schedule a 15 minute call with us here.
