What’s Prompting the SEC to Create Succession Planning Rules for Financial Advisors

We’ve written recently about some of the rules the SEC is considering for financial advisors concerning their succession planning. These plans include making succession planning a mandatory activity for all registered financial advisors as well as having a business continuity plan in place in case of emergencies. While these are all sensible plans to have in place for any financial advisor, why did the SEC decide this was necessary in the first place?

Why the SEC Is Stepping In

The average age of financial advisors in the United States is 50.9.

A survey of financial advisors in 2013 found that the average age of financial advisors in the United States was almost 51, and almost ⅓ of all advisors are between the ages of 55 and 64. That means one-third of all financial advisors are now entering their retirement years. When the SEC saw that, they knew something needed to be done. If a third of the advisors in the industry retired, were there going to be enough younger advisors ready to take over? After all, there are billions of dollars being managed by financial advisors, and it matters to the economy (not to mention those holding the wealth themselves) that the money continues to be managed appropriately. The average age of financial advisors isn’t getting lower anytime soon, either, so succession planning will continue to be important in the future.

The financial crisis of 2008 taught us a lesson.

When the market crashed in 2008 and the United States experienced a recession that lasted for years, a huge number of financial advisors were either laid off or decided to leave the financial industry. When that happened, there weren’t a lot of succession plans in place to ensure the exiting financial advisor’s clients had a positive transition to a new RIA or firm. That left a lot of money in portfolios vulnerable. The SEC is eager to avoid another crisis like this one in the future, and succession planning and business continuity plans can be a huge preventative measure.

A large percentage of independent financial advisors don’t have a plan.

The SEC also knows that when it comes to smaller financial advising firms, a large number of them don’t have a succession plan in place. Many of the owners of these firms are hoping that as they near retirement, the right succession partner or company will appear on their doorstep. While it could happen, it’s a much better idea to have a plan in place that proactively moves clients from the retiring advisor to a new one. That’s what larger companies are doing with great success, but it’s the smaller firms that are keeping the SEC up at night.

Why You Shouldn’t Wait for the SEC

The SEC is right: succession plans are a necessity for all financial advisors, whether they are working at a firm big or small. If you are a financial advisor who is planning on retiring in the next ten years, the time to start making your succession plan is now instead of waiting for the SEC to force your hand. You’ll have a number of advantages when you start now. First, you’ll beat any deadlines that are put into place by the SEC. Second, you’ll be able to save money on the cost of succession planning. And finally, you’ll have the peace of mind of knowing that your clients will be taken care of in case of an emergency or your retirement. Need help with your succession plans? Talk to our team at advisorRETIRE™ today.