We never know where life’s journey will carry us. That’s why the financial services industry’s most important role is helping families prepare for whatever may happen.
LIMRA research shows that although advisors are diligent in making sure their clients are ready for an uncertain future, many lack similar plans for their own practices. Furthermore, clients expect and assume their advisors already have continuity and succession plans in place.
LIMRA recently surveyed nearly 900 U.S. advisors and 1,600 consumers to gather their thoughts on business transitions. Our research uncovered a significant gap between client expectations and reality. Clients assume their advisors practice what they preach and have business transition plans in place, but that’s not always the case.
Nearly all clients believe their advisor is prepared for an unforeseen exit from the business. Only 1 percent of clients believe their advisor is not prepared.
The reality is quite different, however, as just 50 percent of advisors are prepared with a business continuity plan.
We saw similar results for succession planning. Nine out of 10 clients expect their advisors to carry out their obligations without disruption. Among clients whose advisors are age 50 and older, two-thirds believe their advisor has started preparing for retirement. By contrast, the research shows up to half of advisors do not have succession plans.
Clients expect the truth with no smoke and mirrors. Trust is one of the top three most important factors a client considers when working with an advisor — it’s the foundation of the relationship. Our research found that for many clients, loyalty lies more with individual advisors than with the companies they represent. Clients believe their advisor has earned their loyalty and always makes decisions in the client’s best interest.
The desire to make a difference in people’s lives often is cited as the primary reason an individual chooses a career in financial services. These inherent characteristics of caring, protecting and “doing good” are the motivation behind why many stay in the career for so long. That’s why business continuity and succession plans are so important. An advisor’s lack of planning for their practice is risky and does not meet their clients’ needs and expectations properly.
The industry faces two significant challenges: the maturing sales force and a changing environment with more regulation. These challenges make business transition plans more essential than ever.
Many in the industry believe the new Department of Labor fiduciary rule will trigger a mass exodus of older advisors who may leave earlier than originally planned just to avoid the new regulation. Furthermore, the Securities and Exchange Commission is proposing an amendment to its prior rule regarding business continuity and transition plans for investment-oriented advisors.
Nearly nine in 10 advisors start their businesses from scratch and spend their working lives building a successful practice. So why leave something that important to chance? Business continuity and succession plans are essential to ensure the practice can continue into the future.
Our research suggests the most likely reasons advisors don’t have plans are mainly increased demands on their time and that they simply don’t know what to do. Many advisors admit they lack the knowledge and understanding of how to build a plan. Developing business continuity and succession plans is complex and time-consuming. Valuating the practice is a difficult but essential process for these types of plans.
Identifying a problem often can reveal an opportunity. Advisors who gain the knowledge and experience in building continuity and succession plans for their peers can differentiate themselves and provide an important service for their clients.
With proper planning, one advisor’s legacy is another’s future.
Laura A. Murach, ACS, ALMI, is an associate research director, distribution research for LIMRA. Laura may be contacted at [email protected]