Only 6% of financial advisors planning to retire within 10 years have a fully documented succession plan, according to the findings of a survey released Tuesday by Kestra Financial and Bluespring Wealth Partners.
That is despite the fact that many owners eyeing succession said they felt confident about their plans, the Kestra Holdings subsidiaries pointed out.
Raising particular concern for many first generation (G1) advisors is the survey’s findings that one in three potential successors would consider leaving their firm without a clear succession timeline.
The findings of the survey, conducted online in October and November for the Kestra Holdings subsidiaries by independent research firm 8 Acre Perspective, are explored in the new report “Bridging the Gap: Succession Misalignment Between G1 and G2 Advisors.”
This was the first proprietary industry survey by the Kestra Holdings subsidiaries and it captured the opinions of advisors who are affiliated with a wide range of independent broker-dealers and RIAs.
The findings revealed a significant disconnect in execution between G1 advisors, who are firm owners planning to retire, and G2 advisors, who have been identified as successors or potential successors for owners in their current practices, according to the Kestra Holdings firms.
“Despite shared aspirations when it comes to leadership transition planning, this misalignment creates a divide,” according to the firms.
Many intended successors said they felt undervalued and unprepared and some were already even on the verge of walking away from their firms, according to the survey’s findings.
Some were already even on the verge of walking away from their firms.
“In an industry facing a scarcity of next-generation talent, that’s a risk no firm can afford,” the subsidiaries said in a news release.
Relinquishing Control
Other standout findings of the survey included: G1s want to retire but over 50% are reluctant to relinquish control, and more than four in 10 feared their clients would not be as well cared for if they left the firm.
The longer G1s wait to document a succession plan, the more they risk, the Kestra subsidiaries warned.
G2s are looking for tangible incentives but only 41% of G1s nearing retirement had transferred any equity to successors, the Kestra subsidiaries noted.
Only 35% of G2s said they felt fully prepared to lead, indicating the need for more leadership development and training.
Only 35% of G2s said they felt fully prepared to lead.
The top areas G2s would like more leadership responsibilities for are strategic planning (49%) and business financials (47%) — the exact skills they need to step into the role of owner confidently, according to the Kestra subsidiaries.
“Succession is a very emotionally charged topic for advisors,” John Amore, President of Kestra Financial, told WSR. “Having a strong succession plan really comes down to preserving the legacy that reflects their life’s work, while also ensuring continued care of clients—and that’s a lot to tackle.”
What Motivates Successors
In Kestra’s research, the firm also explored the question “What motivates G2s, or potential successors, and inspires them to lead?” Amore pointed out.
“We found that G2s are drawn to the opportunity to build a rewarding career as an entrepreneur, calling the shots and without a cap on earning potential. As a successor, they have that opportunity without starting from scratch or taking on the full risk of launching a new firm.”
He added, “In an industry with a shortage of next-gen talent, entrepreneurially minded G2s are in high demand. For G1 advisors who are confident in their G2 successor and want to offer security and assurance of their commitment, this survey offers a roadmap of what matters most.”
The main takeaway that the Kestra subsidiaries wanted to leave with advisors on each side of succession planning is that “both parties share a common goal—bridging the succession gap is not only possible; we see it happen nearly every day,” he said.
"Succession planning is often viewed as tomorrow’s challenge, but our data shows that delaying planning has a negative impact on firms today,” Amore said in the news release.
“This research aims to equip advisors with a clear path to bridging the generational divide and future-proofing their businesses. Firms that embrace this approach will thrive through transition, rather than just getting through it.”
A Multi-Year Journey
“True succession planning requires transparency, training, tangibility (formal documentation), and tailoring to the specific firm,” Pradeep Jayaraman, President of Bluespring, told WSR.
“It’s a multi-year, phased journey focused on empowering the future and supporting strong enterprise value and growth.”
He added, “There is a high correlation between a strong succession plan and the firm’s enterprise value. A strong succession plan is a signal to potential buyers that your firm isn’t subject to key man risk and has the longevity and ability to thrive as a business for the long term. At its core, delaying a succession plan is a business risk and one that will impact firms’ sustainability, growth, profitability and ultimately valuations.”
“There are multiple approaches to succession planning: naming an internal successor, bringing in an outside hire, or pursuing a merger or a sale,” Jayaraman said in the news release.
But he added, “Determining the best path all comes down to aligning the unique goals of each business owner and their potential successor to ensure a successful transition.”
All 269 of the survey participants were with firms that have $750,000 or more in revenue, at least 50% of which is generated from individual retail investors, the Kestra subsidiaries said.
Kestra Financial oversees $142 billion in assets under advisement (AUA) and supports over 1,300 producing financial professionals, it said.
Jeff Berman, Contributing Editor and Reporter at Wealth Solutions Report, can be reached at jeff.berman@wealthsolutionsreport.com.
