Advisors’ Biggest Retirement Blind Spot May Be Their Own

First, the bad news. Fifty percent of financial advisors do not have a written business plan, 46% do not have their own retirement plan for themselves (despite 40% saying they plan to retire within the next 14 years), only 25% have a succession plan in place, and only 25% have a formal definition of their ideal client. When asked “What do you plan to do with your business/clients when you retire?” 17% answered “I don’t know.”

Now, the good news. Of those advisors under 40, 61% say they have a written business plan. The larger the firm, the more likely it is to have one. There is also a clear “professionalization” trend within the advisor industry, with more non-advisor managers in place to run the business, and advisors are doing a good job of meeting their clients’ needs.

The news arises from the Financial Planning Association’s inaugural study, “The Future of Practice Management,” sponsored by the FPA’s new Research and Practice Institute, and executed by Advisor Impact, the research firm run by Julie Littlechild, who provided some of the color in the comments above.

Advisor Impact is partnering with the FPA Institute on this study and a series of additional reports throughout 2014.

The Future study was based on an October online survey of 2,376 respondents who spent an average of 27 minutes to complete the survey. Of those respondents, 1,954 were advisors, drawn, Littlechild said, from all advisor channels — RIAs (23% of all respondents), wirehouse brokers (15%), independent and regional broker-dealers (29%), 13% insurance BD reps and 10% dually registered advisors. By design, 422 of the total respondents included junior advisors (those under 40), support staff and non-advisor management. Only about 30% of the respondents were FPA members, but 39% were CFPs. 

Valerie Porter, the FPA’s Director of Practitioner Services and herself a CFP with her own practice near Indianapolis, said the inaugural study was meant to “identify some of the key areas where advisors need guidance,” and explained that the quarterly studies that will be issued throughout 2014 “will focus on some of those issues, and then tailor resources at FPA to meet those needs.”

In addition to helping FPA’s members — for example, “if we find that many advisors don’t have a business plan, FPA can make templates available” to members and hold sessions on how to write a business plan — it will also benefit consumers.

One of the major issues identified in the study was advisors’ struggle with time management, which Porter said she understood well. “There are lots of demand on our time,” she said, and the work that advisors do on behalf of clients “can be very taxing” since “money is a very emotional subject.”

In fact, the next topic in the Institute’s series of reports, Porter said, will revolve around productivity: “It’s all about efficiency, about time management, about knowing who your ideal client is and what your goals are.”

The study is designed to give advisors the tools to build and improve their businesses and to develop a robust practice management model. That process starts with setting personal goals, which drive business and succession goals.

“You have to start with your goals,” Littlechild says, but the study showed “that there’s clearly some weakness” among advisors who have failed to write business and succession plans.

Porter voiced surprise at “the number of advisors who don’t have their own retirement plan,” and called the lack of business planning “disappointing.” As for the study’s findings that many advisors haven’t clearly identified their ideal clients, Porter said it was an important topic since figuring out “who you want to work with, and who you can serve well” leads you to become “an expert in working with that kind of client.”

When you do become an expert, she says, those clients “refer you to other people like themselves,” so that “the whole issue of referrals becomes a nonissue.” For the advisor personally, she says that “when you get someone you genuinely like to work with, your satisfaction levels rise, and people want to work with you” as well.

As for the good news on the profession, Littlechild said that based on “other research we’ve done, advisors by and large are doing really good work for clients,” and that there is a “professionalizing of the industry” occurring, marked by “more non-advisor management coming into firms, which will influence training.”

With the inaugural study and the follow-ups, “we’re talking about making the business side better.”