Displaying items by tag: wealth management

More than anyone else, financial advisors intuitively understand the value of planning in order to create successful outcomes. Their entire career is built around that concept, and they provide that service for their clients on a daily basis to help them reach their financial goals and attain a comfortable retirement.

So, it’s a conundrum that many advisors don’t apply the same rigor when it comes to their practices especially as it may impact their ability to recruit and retain clients if they are at a more mature age. Succession planning can also help advisors maximize the value of their business when it comes to selling, but it can be overwhelming given the variety of options. 

A good intermediate step for advisors who are just beginning the process is to have a management succession plan and a buy/sell agreement in the event of a death or disability. A management succession plan details who will take control of the business in terms of operations. Typically, it’s an employee or possibly a trusted colleague in the industry. The buy/sell agreement is usually funded by life insurance and is a legal document that clarifies how ownership of the business is transferred if the principal unexpectedly leaves the business. 

Both steps are essential as it guarantees the successful continued operation of the business, while assuring that the interests of the advisors’ heirs and family are also taken care of. 

Finsum: Ironically, many financial advisors don’t take succession planning seriously. It’s understandable given the variety of options and implications, but here are some small steps to get you started.

LPL Financial topped earnings expectations in the second quarter as it reported $3.65 in earnings per share which exceeded analysts’ estimates of $3.47 per share. It was also an 85% increase from last year, primarily driven by higher rates. The company also had another strong quarter in terms of recruitment which the firm expects to continue in the third quarter. 

In total, it added 421 new advisors in Q2 for a total of 21,942. Notably, this is more than a 5% increase on a year-over-year basis as it had 20,811 at the end of last year’s Q2. It saw an 8% increase in total assets, reaching $1.2 trillion with organic new assets of $22 billion and recruited assets of $19 billion. 

According to CEO and President Dan Arnold, the company’s success was due to winning new clients, expanding ‘wallet share’, focus on servicing clients, and a differentiated experience. It also saw a 99% retention rate in the quarter, and the company continues to invest in new technology and new services such as direct indexing. It also announced the acquisition of Crown Capital which has 260 advisors and $5.5 billion in assets. 

Finsum: LPL Financial announced its second quarter earnings results which topped analysts’ expectations in terms of earnings per share and asset growth.

It’s often remarked that demographics are destiny. Like most developed countries, the US has an aging population with about 10,000 Americans reaching retirement age every day. And over the next decade, more than 20% of the workforce will reach retirement as well.

The issue is even more stark for the financial advisor industry with the average advisor in the 50s. For advisors in this age group, it’s necessary to start thinking about succession planning for multiple reasons. 

For one, a successful exit requires the same type of planning and intention that an advisor helps clients with in order to reach their financial goals. Second, proper succession planning can ensure that you will maximize the value of your practice when you are ready to retire. Finally, it’s an important signal to prospective and current clients that you are committed to their success even if you may no longer be an active part of it. 

The first step is a continuity plan which details what happens to the practice in the event of a death or disability. The second step is to investigate various options. Recently, a popular option for smaller firms is to sell but then continue to work as an employee for a couple of years to ensure a smooth transition. 

Regardless of what you choose, it’s important to keep your clients updated about succession and continuity plans. Ideally, you can meet with your clients and their new advisor multiple times before the final transition. 

Finsum: The financial advisor industry is approaching a demographic cliff. For a variety of reasons, it’s important for advisors to start succession planning. 

Building a high-caliber team is required for advisors looking to build and scale their own practices which can often include hiring and leading other financial advisors. In InvestmentExecutive, Todd Humber shares some tips for leading a team of advisors. 

Communication is key, especially providing a forum for open discussion of ideas and understanding their needs and concerns. An effective advisor is always taking in information and then providing feedback which is shaped by their expertise and experience. This process should be nurtured as this feedback can be used to make better decisions.

Leaders should try to create a culture where everyone feels important and connected to organizational goals. This can be re-affirmed with regular one-on-one conversations with each team member to ensure that they agree and are aligned with the overall vision. These conversations should be a way for members to express any disagreement or share negative feedback. 

In general, advisors respond better when they are given latitude to accomplish their objectives. This also will help them grow even if it involves the occasional mistake. Leaders should ensure that they learn lessons and apply them in the future while not reducing their desire to take initiative and ownership. 

Finsum: Leading a team of advisors is not a simple task. It requires processing constant feedback from advisors while ensuring that their actions are aligned with organizational goals.

In FinancialPlanning, Victoria Zhuang shares some insights from research regarding a key segment of the population that can help financial advisors successfully grow their practices. In essence, about $72.6 trillion of assets is set to be passed down to heirs through 2045. 

And, this trend is accelerating. This year, $700 billion is forecast to be passed down, and the number is set to double by the next decade. However, many advisors are not positioned for this epic wealth transfer. Only 35% of advisors surveyed indicated that younger investors are a ‘critical priority’ or ‘high but not critical priority’.

In fact, clients under the age of 44 only make up 27% of accounts. Many in this cohort will benefit from the wealth transfer. Advisors should be appealing to this demo by offering specific advice and services regarding estate planning and wealth transfer.

Additional tips to appeal to this niche are to offer more technology like video calls, AI, and/or robo-advisors that would feel more intuitive for Millennials and Generation Z. Firms can also target or recruit younger advisors who may do a better job of connecting with ‘young heirs’.

Finsum: Prospecting ‘young heirs’ could be the key to success for advisors over the next couple of decades given the ‘great wealth transfer’ of $72.6 trillion in assets by 2045.