RIAs Were Asked to Rank Strategic Initiatives. Dead Last: Succession.

All talk, little action in Schwab’s annual benchmarking survey.

(Luke MacGregor/Bloomberg)

(Luke MacGregor/Bloomberg)

Most registered investment advisory firms continue to prioritize acquiring new clients and, to their detriment, are delaying forming much-needed business and succession plans.

For Charles Schwab’s 2019 RIA Benchmarking Study, the firm asked RIAs to choose their top three priorities from a list of nine goals. The results, released last week, show that growth is clearly the most important; 37% said increasing referrals from existing clients was a top priority. Acquiring clients through business referrals was the second most common priority chosen, at 26%, followed closely by improving productivity through new technology.

Prioritizing growth is paying off. From 2014 to 2018, firms increased the average number of clients served per professional from 46 to 52 and maintained client service levels, according to the study. Average assets under management during the same period swelled from $418 million to $672 million.

But only 13% of firms said that developing or enhancing a succession plan was a top-three priority, making it the least favorable. The low percentage is similar to years past, despite custodians, consultants, and others promoting awareness of the issue.

“It’s one of those topics I wish was moving up more on the list every year. I really think that succession planning should be a part of ongoing talent development strategy at a firm,” said Lisa Salvi, a vice president of Business Consulting & Education at Schwab Advisor Services.

Salvi added that the small percentage of firms developing succession plans is hardly due to there being too few older advisors given that the average U.S. financial advisor is 52 years old.

Advisors at least recognize the importance of having a formalized business strategy. The benchmarking study indicates that 92% of RIAs are considering an internal succession plan. However, about one in four RIAs haven’t developed a plan at all, according to a recent study by financial research firm Cerulli Associates.

Moreover, many succession plans aren’t well-defined. And when advisors address the issue, short- and mid-term considerations are usually the focus, says Salvi, who routinely meets with and consults RIAs.

Only 38% of firms have documented a planned exchange of ownership and 62% are still led by their founder and have never had to implement a succession plan.

A good succession plan generally involves owners sharing equity with one or more internal employees, Salvi said.

Hamilton Capital, a Columbus-based RIA that manages over $2.5 billion, announced Tuesday that it expanded its ownership group to include its chief investment officer and three managing directors. The four have played significant roles in the firm’s growth and making them owners helps establish a leadership foundation for the future, Hamilton Capital Chairman and CEO Matt Hamilton said.

The RIA also hasn’t chosen business planning at the expense of growth. Hamilton Capital has grown by almost 18% annually since it was founded in 1997. It has said it plans to acquire other RIAs and reach $10 billion by its 30th anniversary in 2027.

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