Study after study has shown that succession planning for their businesses ranks as a high priority for advisors, yet many RIAs still have nothing in place to show they are prepared for a smooth transition.

Franklin Templeton has released research, in partnership with Institutional Investor’s Custom Research Lab, revealing that succession planning is still on many RIAs’ back burner.

“I think because they are spending so much time thinking about and helping other people that they don’t spend time thinking about themselves,” said Pierre Caramazza, head of the Private Wealth Division at Franklin Templeton. Caramazza said RIA leaders underestimate the amount of time and expertise it takes to prepare for a transition. “I think a lot of people think it’s easy until they realize the complications,” he said.

Caramazza pointed out that we are in a buyer’s market and that’s all the more reason for advisors to be more prepared for a transition. “Despite a selling market, buyers tend to be dominant, so they are better prepared,” he said.

The bottom line, Caramazza said, is that everyone should have an exit strategy. “You should have a strategy as soon as you start your firm, understanding when you would like to go, how you would like to go … so that it will make everything smoother for those who are involved.”

The study found that while two-thirds of prospective sellers anticipated a change of ownership within five years, only 36 percent said they had begun the process to ensure a smooth transition to retirement. A total of 162 RIAs were surveyed; Franklin Templeton also conducted interviews with RIAs and valuation consultants.

A similar study conducted by the Financial Planning Association, “The Succession Challenge 2018: Why Financial Advisors are Failing to Plan for the Inevitable,” found that 73 percent of advisors, many aging out of the business, don’t have a written succession plan, and 60 percent of those within five years of retirement don’t have a plan in place. Forty-eight percent of those five to 10 years away from retirement lack a plan.

Smaller firms are in even worse shape, the FPA found. Only 13 percent of firms with less than $50 million in assets under management have a succession plan, compared with 60 percent of those with more than $500 million in assets under management. A total of 309 independent RIAs and advisory team members were surveyed by the FPA.

The Templeton study found that prospective buyers, nearly 80 percent, identify as opportunistic acquirers, noting they are likely to acquire or merge only when presented with a very good opportunity.

It also found that nearly three-quarters of potential sellers and more than 85 percent of potential buyers said cultural fit is a primary criterion in potential mergers or acquisitions, outweighing geography, brand and price.