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The recent and rapid increase in technology use and requirements is coming up more often with older advisors in terms of the issues they’re facing that may lead them to put a succession plan in action.

Andrey Popov/iStockPhoto / Getty Images

The COVID-19 pandemic has triggered a wave of succession planning among financial advisors that some experts believe could become the largest transition the industry has ever seen.

Every major financial crisis leads to a rise in succession planning among advisors, says George Hartman, president and chief executive of Market Logics Inc. in Toronto, who coaches advisors on practice management matters, including succession planning. In addition to the usual factors such as increased market volatility and lower short-term growth potential, the pandemic has created multiple reasons for more experienced advisors to consider passing the baton on to the next generation.

“It reminds me very much of the 2008-09 [global financial] crisis,” he says. “There was a big transition [of financial advisors] around that time and I kind of feel like we are in a similar situation today.”

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For example, any advisors who might have been contemplating selling their books of business in early 2020 would say, “‘This is something I couldn’t foresee, cannot control, and do not want to contend with,’ so, now I think we could see an acceleration of people wanting to exit the business,” Mr. Hartman says.

Jeff Gans has been watching that acceleration occur in real-time since the start of the pandemic. As the founder and CEO of Purpose Advisor Solutions, part of his business involves buying books of business from retiring advisors and providing financing for younger advisors looking to acquire their bosses’ business.

“We have seen a tripling, at least, maybe even four or five times now, in terms of the number of advisors saying they really need to think about [succession planning], and we think that is only going to continue to grow,” Mr. Gans says, noting that the growth his firm has observed since the start of the year was after “already seeing an increase in that trend” over the previous 12 months.

“This is not going to slow down,” he says, “it is only going to accelerate from here.”

One of the reasons for that is because during the global financial crisis, advisors had to wait years for the value of their books back to get back to a level at which they could seriously consider selling their businesses without making a major financial sacrifice. However, Mr. Hartman says the market’s recovery this time around has outpaced that of the underlying economy, potentially adding more urgency to the current wave of advisor succession planning.

In addition, there are other reasons this time around that are compounding the usual financial implications why advisors tend to accelerate their retirement plans in times of crisis. These range from the forced adoption of new technology, to the rapidly changing role of the advisor, to an aversion to the idea of resuming a regular, high-contact office life. Add that to an average age of 55 years old among advisors in North America – with one-fifth of all advisors over the age of 65, according to 2019 data from J.D. Power – and you end up with a recipe for an industry-wide retirement wave of truly historical proportions.

“What comes up more often than not with some of the older advisors in terms of the issues they’re facing that may lead them to decide to put their succession plan in action would be the recent and rapid increase in technology use and requirements,” says David Bernstein, senior consultant at IG Wealth Management in Toronto, who recently put his own succession planning in place after turning 60 years old in July.

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“The facilities were there before, but the motivation and ability to pull yourself together after you’ve been in the business for 25 or 30 years and potentially learn an entirely new system all over again? Some of the older advisors are having great difficulty, with the rapid technological changes that COVID-19 has brought about,” he says.

The pandemic has also forced “the role of the advisor itself to change,” Mr. Hartman says. “We have had to stop being technicians and administrators and just effecting transactions and things like that, and we have become coaches, counsellors and cheerleaders. In terms of how that impacts succession, there are going to be some advisors who are either ill-equipped or not interested in taking on that role.”

Wendy Leung, senior consultant with Diamond Consultants in Morristown, N.J., says COVID-19 has “made the urgency” of succession planning among financial advisors “more tangible” for all the reasons that might be expected, but with an additional motivating factor that’s unique to this particular crisis.

In this type of environment, Ms. Leung says an advisor’s decision to retire “could come from even practical things, like having no intention of getting on a train or a subway and commuting to my office downtown anymore, even though that will eventually be expected of me again. This has become a topic that we now discuss daily because there is a wave of retiring advisors.”

Meanwhile, Mr. Bernstein says that “the other thing that really hits you with something like COVID-19 is not just the financial aspect of it or the logistical changes it required, it also makes advisors ask themselves, ‘Do I really want to keep doing this now since our mortality is front and centre, with my age being what it is?’

“Why do this for another five years when I can try and sell my book sooner and enjoy life a little bit more given how fragile it is right now?” he says. “That’s a highly personal and unique thing for each individual, but I’m sure many advisors have experienced a similar thought process.”

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Although Mr. Hartman says he’s still getting far more calls from advisors looking to buy books of business off of retiring advisors than he does from advisors looking to sell, he expects that to change at some point in the not too distant future.

“That [dynamic] will persist for a while, but combine all these factors – especially the impact of the pandemic, psychologically, the way it’s changing the role of advisors and the necessity to adapt to new technology – and I think we are going to have more sellers than buyers eventually,” he says.

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