Gaps In RIA Succession Planning Reveal Opportunities

Younger advisors not trusted - but also not incentivized

January 19, 2025

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Happy Sunday, and welcome to Benzinga’s financial advisor newsletter of 2025!

Today, we’re looking at the record-low rate of succession planning in RIAs as founders and partners age into retirement themselves - and what companies can do to fix the problem.

So, let’s get to it!

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INDUSTRY CHATTER

America's ageing population doesn't only show up in a larger proportion of adults nearing or reaching retirement. Advisors themselves are also aging out of the business. Yet preparations for how to deal with this shift are at all-time lows in the industry, according to a new national survey by consultancy DeVoe & Co.

Succession Planning at All-Time Low

The firm polled 100 senior RIA executives, principals, and owners, and the responses reveal that only 42% of advisories have written succession plans in place. That's the lowest that number has been since the firm started asking the question, in 2019.

While soaring advisory valuations make it less likely that junior employees will be able to buy out founders, the consultants at DeVoe point out that succession planning is important not just for economic reasons, but also to ensure steady management and reliability. That in turn may increase the value of the advisory even more, which would help founders looking to sell to a competitor and retire even more.

Little Trust in Younger Advisors

One big hurdle DeVoe identified is that respondents generally say they'd prefer to have their companies taken over by internal candidates, but also report a lack of trust in the next generation. Only one-third say they trust the next generation to take care of their company, another third have medium confidence in that, and the last third have none.

This suggests there's a huge gap in expectations and training between senior advisor executives and partners on the one hand, and their more junior employees on the other. For a smoother transition, better client experience, and higher advisory valuation, advisories should consider instituting mentoring and training programs to quickly and internally build up a suite of potential leaders that executives will trust to manage the company.

Incentive Plans Needed to Train and Retain Talent

Finally, to enable that, advisories will have to use financial incentives to have the best advisors stay so they can be trained for leadership. Here, DeVoe's survey identifies another gap. Only 49% of respondents said they have a clear plan for compensating advisors, with another 28% saying they give informal direction and 15% saying they give discretionary bonuses. More respondents would not recommend their company's compensation plan to a friend than would.

This marks a huge opportunity for RIAs. Reworking incentive plans will help hire, cultivate and retain the best talent, as well as ensure a smooth transition for the company.

MARKET RECAP

A benign December inflation report was all it took to ignite another strong rally on Wall Street, with major indices delivering their best weekly performance since the post-election surge in early November.

Heading into the week, markets were gripped by concerns over inflation and interest rates, pricing in just one rate cut by year-end while the 30-year Treasury yield hovered around 5%.

Fresh data showed inflation rising for the third straight month up to 2.9%, yet right in line with forecasts. A softer core reading — excluding food and energy — gave traders hope that the Fed might cut rates at least twice this year.

Adding fuel to the bull run, major banks kicked off the fourth-quarter 2024 earnings season with blowout results.

Financial stocks — as tracked by the Financials Select Sector SPDR Fund (XLF) — jumped 6% for the week, their best rally since October 2023. Goldman Sachs Group Inc. (GS) led the charge among big players, surging 11% to hit record highs.

In commodities, oil briefly touched $80 per barrel before retreating after the approval of a ceasefire deal in Gaza between Israel and Hamas.

In cryptocurrency markets, Bitcoin (BTC/USD) continues to defy gravity, surpassing $100,000, fueled by optimism over crypto-friendly policies under the incoming Donald Trump administration.

Trump will officially take office as the 47th U.S. president on Monday.

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Bessent’s Economic Vision

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Bitcoin Reserve Talks

Reports suggest Trump is open to the idea of a U.S. strategic Bitcoin reserve, a move that could reshape fiscal policy and spark industrywide debate.

Detroit EV Surge

Ford Motor Co. (F) and General Motors Co. (GM) reported a sharp rise in electric vehicle sales, with the Mustang Mach-E and Cadillac Lyriq emerging as top sellers in 2024.

TikTok Ban Upheld

The U.S. Supreme Court upheld a law forcing ByteDance to sell the TikTok app by Jan. 19 over national security concerns. Trump could attempt to roll back the ban after taking office.

THE WEEK AHEAD

Economic Data

  • Monday: Martin Luther King Jr. Day, German producer price index

  • Tuesday: US Treasury auctions,

  • Wednesday: US mortgage market and refinance indices

  • Thursday: Japan interest rate decision, US crude oil inventories and jobless claims

  • Friday: US S&P preliminary, EU, and German producer managers’ index

Earnings

  • Monday: Martin Luther King Jr. Day

  • Tuesday: Netflix (NFLX), United Airlines (UAL), Capital One (COF), Prologis (PLD)

  • Wednesday: Johnson & Johnson (JNJ), Procter & Gamble (PG), Halliburton (HAL), Ally Financial (ALLY)

  • Thursday: American Airlines (AAL), Union Pacific (UP), Freeport-McMoRan (FCX)

  • Friday: Verizon (VZ), American Express (AXP), Ericsson (ERIC)

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