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Why shock-and-awe over low succession planning rates is unhelpful and distasteful

Most RIA owners want to own their firm into their 70, even 80s, 90s so let's change the conversation to one of sticking around constructively

Thursday, August 21, 2014 – 6:05 PM by Guest Columnist Todd Clarke
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Todd Clarke: Advisors who are being advised to sell their businesses in order to

Brooke’s Note: In today’s world, the marketing approach du jour is content marketing and a favorite subject matter for content in the RIA world is infirmity and death. The obsession over the average age of an RIA principal being 57 and the average age of an advisor being 52 is the subject of countless webinars, seminars, articles, studies, surveys, platforms and programs. The conversation is framed as succession planning. While many of the efforts at rationalizing this subject contain good ideas and nuggets of profound truth, it is also possible that, like a good lie, those truth elements are disguising a bigger untruth and that all the hype surrounding succession planning is about as useful as Y2K. You can understand why nobody has tried to cry bullpuckey publicly on this matter thus far. It’s like stepping in front of an ideological freight train — the ideology that says we can plan, i.e. control anything, including our own demise — and damn well better. There might even be some good proof of Todd Clarke’s antithetical take on succession hype right around us. Look at Ned Johnson, Chuck Schwab and Bill Gross. Sure they have help in their companies. But their best plan (notwithstanding Bill’s hiccups) has been to stick around and dare anyone to try to succeed them.

I don’t know about you, but the incessant harping about the hapless succession planning by financial advisors in our industry is wearing on my nerves like a car alarm set off by nothing, whose owner is nowhere nearby.

Even a casual search on “succession planning” in the trade press reveals hundreds of articles on the matter — crowing that only 17% or 22% or 28% of financial advisors have a succession plan.

I would wager that the majority of these offers of advice and input are lavished on advisors by those in the business who stand to benefit greatly — either by fat fee from writing a plan or a fatter outcome should an aging advisor sell them, or allow them to broker, their book of business, aka their life’s work.

In full disclosure, my firm, CLS Investments, recently published a similar succession statistic. But it was another finding based on that same CLS survey that evolved my thinking on this topic of financial advisors easing toward the age of 65. The finding: The average age that advisors intend to retire is 71. That’s just an average.

The finding clearly indicates to me why advisors are proving stubbornly unwilling to be shocked and awed by non-advisors telling them that a sort of arbitrary deadline is hanging over their head because they haven’t put down on paper how they will put themselves out to pasture. And I’d be surprised if many advisors aren’t also taken aback, or a little offended, by the implicit presumption that they are irrational, stupid, unprofessionalor even immoral simply because they are going about their business as if they will never die.

Algorithm of succession

There are advisors that should plan for a sale relating to their state of mind and health. Others were just never cut out for the entrepreneurial demands in the first place. What is the right amount of advisors that should feel urgency about creating a plan? A good clue may be to look at how many firms have plans — 20% to 30%. Maybe it should be on the upper end of that range or, building human procrastination into our algorithm, maybe more like 35%.

But surely the idea that any advisor principal over the age of 50 should stop the presses to get a plan in the safe deposit box is an overrreach. The logic of such a necessity begins to break down when the very nature of advisors and their unique relationship to their vocation gets examined. It is not a tautology built on assets under management, revenue and the falsely portrayed American ideal of checking in to the Florida gated community on your 66th birthday.

The nature of the best financial advisors is that their destiny and life trajectory overlaps with lawyers, doctors and other professionals who come to what they do as a calling. These are typically pros of character and discipline, eager to study long after their college days are over, and rewarded primarily by bringing satisfaction to clients and patients with money as the welcome effluent of a capitalist society.

Exhibit A: If you asked my father years ago, a lifelong financial advisor, when he planned on retiring, his answer was always the same: “I am retired”. And yet he still came in to the office every day with a head of steam. While on the surface his characterization of his employment status may seem demented, he didn’t see it that way. The reality is, working wasn’t work for him. And it never had been. He loved practicing his profession, plain and simple. See: A terrible loss in the RIA business of the original breakaway broker.

Die with your boots on

My father is not an outlier when you consider, for instance, how many doctors and lawyers practice well into their 70’s and 80’s. Their work is their life, and vice versa.

These are not construction workers or coal miners whose bodies have broken down by age 65. These are not loan officers or actuaries who can’t take another day performing functionary duties inside the gray-cubicled world of a bank or insurance company. Advisors don’t want what they do to end.. Helping someone through their financial life’s evolution is as important as caring for them medically and legally. And while your clients may take comfort in the fact that you have a succession plan, equating that plan to a sale may cause an equal amount of trepidation — in other words, as Brooke Southall puts it: “I just might take greater comfort in knowing my advisor plans on dying with his boots on.”

So, what’s with all this white noise about “succession planning”, with a not so subtle subtext of “sell me your practice” or “let me sell your practice for a fee” or “help assure that an orderly transition keeps your assets at my custodian.” I find it distasteful.

The fact is that advisors who are being advised to sell their businesses in order to “retire” are being misled anyway. For one, their firm is likely not worth nearly as much as they think it is, certainly not enough to fund a prolonged period of retirement.

Secondly, isn’t it conceivable that the advisor could streamline the business, re-invent aspects of it and otherwise make their lives easier in such a way as to make the sale of the business irrelevant as a strategic option? Selling may be the end game for some, but one might argue that if that’s the case then they never truly had their “head in the game” in the first place.

The professionals

In speaking with three advisors, one gets a sense of the determination embedded in the spirit of the warrior. Joe Moyer has reinvented his business, Moyer Financial Group, several times as he has progressed in his career as a financial advisor. While his model served clients well, Moyer was convinced that there was a better way to provide financial services that were more transparent and would highlight the value of the advice he was providing. Now in his fourth decade with the Moyer Financial Group, he is seeking to reinvent his practice for a second time. At 66, Moyer is thinking about the future of his business, particularly now that he has a young son at home.

“I really enjoy the business and working with clients, so I don’t plan on retiring anytime soon,” Moyer says. “I figure I have about a 10-year window to reinvent how everything is done.”

Moyer’s plan is to focus on increasing assets under management, while looking for ways to continue to grow his business. He is working on a continuity plan in case something happens to him or the firm. But he feels no pull, no pressure to sell. See: Have an aversion to succession plans? Consider a continuity pact as a vital baby step.

As a result, Moyer and his wife (who is also his business partner) are focusing on simplifying their back-office by streamlining processes so that they are able to create operational efficiencies, enabling them to spend more time away from the business, traveling, and enjoying their young son.

Now consider the tale of Rick Arellano. At 81, Arellano has forgotten more about the business than most will ever know. Currently, Arellano is affiliated with Larkspur Financial Advisors (LFA).

“I don’t want to retire,” says Arellano. “I still enjoy what I’m doing and I guess I’m afraid of the inactivity that comes with retiring. I’ve always been active my entire life and enjoy the freedom that being a financial advisor provides.”

Live to 100

For Arellano, retiring and hanging up his shingle brings uncertainty. “What if I live to be 100 or more?” he asks rhetorically. “I really like my lifestyle and don’t particularly want to change it. As long as my mind is still strong, I want to continue working with my clients. Being a financial advisor is a great profession.”

Learning From Your Mistakes, In Aggregate

And then there’s Dave Huber, who founded Huber Financial advisors in 1988. He was a solo shop in the beginning; however, he quickly realized that if he was to create any business value that he could monetize down the road, he would need to invest in his practice. Looking to build the critical infrastructure necessary to create a sustainable business, he decided to hire his first employee.

“I was able to get the firm to about $60 million on my own, but in order to really make a difference, I made my first key hire in 2000 of an up and coming advisor, Rob Morrison,” says Huber. “It was a scary decision, but one that definitely paid off as now Rob has grown into becoming the President of the firm and runs the day to day operation. Our assets are just shy of $800 million.”

Huber, 57, has also brought his son, 28, into the firm. Along with Morrison, 42, Huber has a compelling story to tell his clients about the long-term vision they have. “It is definitely a competitive advantage to be able to show to new clients that you have stability and a strategic plan to continue the firm, particularly as many advisors don’t,” Huber notes.

Admitted mistake

Huber’s determined focus on an internal succession plan over an external sale was validated by his own admitted mistake of selling his firm to a financial buyer, aka “roll-up” in 2007. This firm ended up having financial difficulties and Huber was forced to step back in and get his stock back. “Selling to an aggregator or other large organization is a very difficult thing to do, given the many different styles, cultures and approaches independent firms have,” Huber explains. “Don’t get deceived by the perceived upside of these deals or the economies of scale promised, you really need to do your due diligence and if anything is amiss, walk away.”

As Huber is moving into the next stage of his career, he notes that having a team in place has done wonders for his lifestyle. “I don’t plan on retiring anytime soon, yet because we have such a smooth transition, I’m able to travel and take extended trips without having to talk to the office at all.”

Huber’s advice to other advisors in his age-band is that, “if you want to pull the blood, sweat and tears out of your business and get paid for that, you really need to build out and invest in your firm so that you have an entity that is worth something. In the final analysis, you’ll want to do what’s best for your clients, your employees, and your family. That’s what ultimately matters.”

Survey says

We recently did a survey of our top advisors. All of these advisors are associated with an independent b/d or an RIA. All of them have at least 75% of their revenue in fees. I wanted to dig deeper to determine why advisors — especially those near or in retirement age — weren’t creating written succession plans.

What we found really surprised us: advisors can’t and/or don’t want to sell.

1. Cobbler Syndrome. We all have heard about the cobbler that made shoes for everyone in the village yet his children went to school barefoot, right?

Financial Advisors seem to be suffering from Cobbler Syndrome. They are helping thousands of individuals prepare for retirement, yet they themselves are not prepared. Only 11% have achieved their desired funding levels for retirement. And 48% said they were less than half way there. They are flat out not ready to retire. Is it any surprise that over half of the respondents did not plan on retiring until age 71, if at all?

2. Valuations. The majority of advisory practices will not provide the payday many advisors are anticipating. And financing of the transaction is often bankrolled by the owner.

3. Desire. We heard comments like “I really enjoy the business and working with my clients” or “I don’t want to retire. I still enjoy what I’m doing and I guess I’m afraid of the inactivity that comes with retiring.”

How many lawyers does it take. . .

Independent advisors should perhaps consider a much more established industry — law — as a model. Lawyers never seem to retire. They literally work as long as their mind and body will allow them to work. The type of work that they do in their sunset years is very different than the type of work they do early in their careers. They typically work less, work with a select clientele, and rely on younger, more energetic attorneys to fuel growth in the firm.

I think advisors can learn a lot by setting up their succession and continuity plans similar to that of the legal field. Advisors need to reinvent the way they are currently running their business so they can enjoy it in their sunset years. The reinventing process may look very similar to a senior attorney. It may involve a more select group of clients and/or a junior advisor to fuel growth.

And so the urge to succumb to the sweet nectar of a potential sale and the tantalizing whispers in your ear of “sell, sell. . .” might best be ignored. Lawyers and doctors live well and don’t build practices to sell them, they build practices to create a symbiosis of serving their clients well, in perpetuity, and receiving the richest rewards of pursuing a calling that involves helping people.

Establishing a succession plan, a continuity plan, is prudent but should be done for the right reasons, one’s clients and family. Selling your business may be a perfectly viable option, if all of the right conditions are met — but should perhaps be a product of a succession plan and not its purpose.

Todd Clarke is CEO of CLS Investments, an Omaha-based, family-owned and operated registered investment advisor managing in excess of $6 billion. As one of the largest third party money managers and ETF strategists in the U.S., CLS partners as an outsourcer with thousands of advisors, plan sponsors, and institutions to offer a wide variety of managed portfolios for more than 35,000 individual investors. CLS uses its own risk budgeting methodology and active asset allocation approach.

Mentioned in this article:

CLS Investments, LLC
Top Executive: Todd Clarke

Stephen Winks

Stephen Winks

August 21, 2014 — 11:38 PM

Succession planning presumes that client relationships are transferable from a founding advisor to a successor. As we all know very few advisors have (1) a consistent comprehensive value proposition that (2) make their practice scalable, (3) establishes professional standing (based on statutory requirement entailed in fiduciary duty), (4) have achieved a functional division of labor which supports the highest level of technical competency and client service, (5) effectively manager their margins (6) so that the professional relationship with the client is institutionalized that makes it possible to establish transferable value in their practice. The client is buying the skillfully executed financial services provided, not the sales ability of a broker.

The fact is that an advisor has created privileged client information over the years that allows the advisor to add value in ways not otherwise possible by any competitor coming in anew. It is because a high level of expert counsel has been institutionalized that creates transferable value in a advisory practice. Brent Broadeski, Ric Edelman, and a very small number of exemplary practices have control over their value proposition, cost structure, margins and professional standing. This is why the future is large RIAs becoming gigantic while broker/dealers thwart all efforts to make advisory services a profession that is built around ongoing accountability for recommendations.

Not every advisory practice has transferable value thus an economically viable succession plan, but some advisory practices have achieved transferable value. The succession plan without the ability of the advisor to sell extraordinary technical competency in the full range of financial services has little transferable value in the context of continuous comprehensive counsel required for professional standing and fiduciary duty in the client’s best interest. This is largely not possible in a brokerage or custody format—it requires an extremely well run RIA which is both responsible and accountable unlike a broker/dealer or custodian.


Fiduciary Advisor Advocate

Fiduciary Advisor Advocate

August 21, 2014 — 11:35 PM
Marion Asnes

Marion Asnes

August 21, 2014 — 7:59 PM

Hi Brooke,

You have asked some interesting questions. Let’s start with “What is the worst thing that can happen to a client if their advisor dies? (I’m really not sure but I assume that the assets continue to live.)” In most cases, nothing would happen. But the worst thing is that the client has a life event or the market crashes while the custodian is sorting out the practice—because the advisor was a solo practitioner with no succession plan. There is no trusted person who knows the client well and can provide guidance when it is needed most. That is a pretty bad situation for the client.

And let’s take a look at Evensky & Katz. They have done everything right, including executing a well-thought-out succession plan while they are around to ease their clients’ transition to advisors they ALREADY trust, because they know them! Evensky and Katz designed and executed their plan over time, with their clients’ interests in mind as well as their own. That is the way it should be done.

You don’t start your succession plan when you need it, but long before. It is a huge effort but a worthy one, and execution takes time. And you should have a contingency plan in place, which covers your clients in case of an accident, illness or other catastrophe, the day you open your door.

As for the other question, I don’t know the answer either. There are always interested parties but that doesn’t mean they don’t have something valuable to say. It’s up to the reader to decide.

thanks and warm regards,

David Grau Sr., JD

David Grau Sr., JD

August 23, 2014 — 1:58 AM

This is an interesting article, and well written, but it makes a common mistake in this industry of equating selling a financial services or advisory practice with a succession plan. They are very different avenues, and have different purposes.

The company I work for, FP Transitions, has now formally valued over 5,600 practices and businesses and firms (we use the different terms purposefully and have a specific definition of each), sold another 1,000, and have set up formal succession plans for almost as many. In our experience, this is how we define a succession plan: “A succession plan is a professional, written plan designed to build on top of an existing practice or business and to seamlessly and gradually transition ownership and leadership internally to the next generation of advisors.” Selling a practice can be an excellent exit strategy, but let’s be clear – selling to a buyer through an asset sale or, even worse, a revenue sharing arrangement, brings your practice to an end. That is not a succession plan.

Succession planning is about building; it is about investing in the next generation to strengthen your own practice and to help grow it into an actual business or firm that can serve your clients and their children and grandchildren. Succession planning for most of our clients means retiring on the job and evolving in skill sets from entrepreneur to shareholder to CEO to mentor. That is a good thing for advisors, for their clients, for their IBD’s or custodians, and for this industry – that is the real reason behind “the hype” that Brooke mentions in his note above. In my thinking, while there is a lot of noise and hype, most of it is inaccurate and unfocused. This young and growing industry needs some clear direction and accurate information – starting every practice from scratch and building small, perishable “books of business” cannot be the future of this unique industry. As a client of an investment advisor, I would never put my money with a practice built to die at the end of my advisor’s career. It is just a matter of time until the captive side of this industry starts beating this drum – one generation practice models are the independent’s Achilles heel.

This past winter, with the help of my colleagues, I wrote a book called “Succession Planning for Financial Advisors: Building an Enduring Business.” You’ll be surprised at some of our findings, but we have the data to back up our conclusions. The surveys that report that 20% or 30% of advisors have a succession plan are sheer nonsense – we work with advisors (registered reps, RIA’s, etc.) with up to about $10 billion in AUM and I can assure you that most “plans” are either an attorney’s buy-sell/shareholder agreement (seriously, you really shouldn’t need to die to trigger your succession plan!) or the notion that “I’ll sell my practice in 5 years.” Our experience is that about 8% to 10% of advisors will ever sell their practice, but 5 times that many think they will and as a result selling becomes a recipe for procrastination and it stops the building and planning process. In the end, attrition is the no. 1 exit strategy actually utilized by independent advisors and that should not be acceptable to any of us.

Finally, lawyers and law firms are not a good example to follow. Independent advisors have recurring, predictable income that generates predictable overhead. Expenses are typically much lower for advisors, and growth rates are higher than in most law firms (disclosure: I am a former attorney). Advisory practices are more valuable and more resilient than any other profession services model we’re aware of. All this adds up to a very unique opportunity and proposition for advisors to plan and build something that can outlive them – not hard to do, but it does take time and good information, something that too often is sorely lacking in this industry. Learn more before you make a decision about your future and that of the practice or business you’ve built. Challenge yourself and everything you think you know about succession planning in this industry because I suspect most of it is wrong.

Todd, thank you for your article. As a fellow writer, I know how much work it takes. Your ideas and words have people talking and that is all a writer can really hope for. Best wishes.

David Sr.
FP Transitions

Matt Cooper

Matt Cooper

August 21, 2014 — 7:51 PM

Todd, Well thought out and written piece. I think the conversation is a little more complex due the different sizes of firms, valuations, owner’s family goals etc.

Where I do think you are generally spot on is that advisors typically really enjoy the business and the lifestyle it provides them. I don’t believe that many advisors actually want to cash out and walk away. However, many may wish to “take some chips off the table” as their business represents a large percentage of their net worth. They may be thinking multigenerational estate planning for their own family.

Finally, many advisors do think about their legacy and would like to have a business that lives beyond their lifetime. They would like to move from successful to significant. They do not simply want to ride the annuity of their current client revenues and have the business dissipate when they are no longer involved.




August 26, 2014 — 9:15 PM

Thank you for the thoughtful comments, this article was fun to write and I appreciate RIABiz giving the topic its due. If its ok, I’ll respond to two commenters in one box:


You are absolutely correct that the clients (and staff and family) deserve to know what the advisors succession plan/continuity plan is. As a fiduciary, the advisor has the obligation to make sure that his or her clients’ portfolios are taken care of well beyond the advisor’s life. Communicating the continuity plan to the clients should help to ease the client’s fears, increase their confidence, and potentially attract the next-gen assets.


While succession planning may ultimately mean that the advisor sells his business to an aggregator, it isn’t the only answer. My point is that the answer to succession planning is as unique as the advisor’s practice. I’m all for advisors selling their practice or taking chips off the table if that is the best, most appropriate answer for their individual situation. Industry experts are painting the picture that selling one’s practice is the ONLY answer. I just think there are other answers to look at when addressing the complex issue of succession planning.

Thanks all,

Marion Asnes

Marion Asnes

August 21, 2014 — 6:32 PM

Todd, you make many good points. But who’s thinking about the clients here? They deserve to know that their advisor has a smooth transition in place, one that will protect their interests and their assets, when the the advisor no longer can or wants to work (and those two are quite different)!

Brooke Southall

Brooke Southall

August 21, 2014 — 7:11 PM

Hi Marion,

I think it’s always good to look at these issues with the clients in mind. But there is always a cost-benefit in
these circumstances. Just how much emphasis should be placed on this issue and at just what point do advisors embark on this giant effort? (I don’t know the answer.)

Are the various parties pressing the succession case doing so because of concern for clients? (I have my doubts.)

What is the worst thing that can happen to a client if their advisor dies? (I’m really not sure but I assume that the assets continue to live.)

In editing this article, I asked myself what firms have fantastic succession plans in place. One that came to mind was Evensky & Katz. But Harold is also still around!

thanks for sparking thoughts,


Brooke Southall

Brooke Southall

August 21, 2014 — 11:40 PM


All good, legitimate thoughts.

We all seek to walk that fine line between taking good advice and caving in to moral blackmail (so to speak). With experience, moral authority, original research and the willingness, courage to think in non-linear fashion, I think Todd has helped us better understand where that line runs in this discussion. I like the fact Todd errs on the side of the 80% of advisors who supposedly don’t have a plan and trusts that there’s a deeper message there than inertia, confusion and procrastination and that we need to dig for it.

thanks again,


Scott Friel

Scott Friel

August 21, 2014 — 7:52 PM


I read your viewpoint on this issue with great interest, congratulations on pointing out many of the fallacies of the current pandemic spate of “succession” planning pitches. I knew your father for 25 years and he was always a gentleman and consistently brought a unique view to the industry. My issues with the current mania over succession planning are much the same as yours with one additional note. I’ve counseled 100’s of advisors over the years on succession planning and the biggest issue is usually finding someone you trust will treat your clients the way you want them to be treated. It’s relatively easy to find a “buyer” for a practice, but is it someone you and ultimately your clients are comfortable dealing with going forward? I hate to admit it, but sometimes I think the legal profession has shown us the way in this regard. Years ago I went to lunch with a friend of mine who was a partner in a large firm. When I walked up to their door his name was listed along with all the other attorneys, but after his name it said “Of Counsel”. At lunch I asked him what that meant and he replied that he went to lunch a lot! He wasn’t retired, he was a rainmaker and a relationship manager which he was able to squeeze in between lunches, golf and travel. This is why I’m such a proponent of fee based business because if you do it correctly, you’ve funded your retirement income stream with just a fraction of your practice. No need to sell, no need to liquidate, no need for a shotgun wedding to a roll up firm if you choose not to do so. We all try to keep our clients options open, we should be more open to not painting ourselves into a corner either! Thanks, Todd, great viewpoint!

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