The Most Important Question You Haven't Asked Your Advisor

My city has a population of around 20,000.  If you search Google Maps for “Financial Advisor” in our town, you will receive 14 results (not counting accountants, payday lenders, & banks).  In 2018 alone, the number of local offerings for investment advice decreased by three. We lost one each to retirement, death, and relocation. That’s a decline of over 20% and its not unusual.  

A 2017 Study by Cerulli & Associates showed that the average age of a financial advisor at the time was 51.  With more advisors leaving the industry and less entering it, this average age has been on a steady climb higher.  The same study showed that over 38% of advisors plan to be retired in the following ten years (and this was two years ago).

The question you should be asking your advisor is this “Where will you be when I need you most?”  If the answer is “retired”, “deceased”, or “I don’t know”, it may be time for you to start looking for a new solution.  After all, most investors engage their investment advisor for life.  Ideally, their chosen professional will be there to see that surviving family members are cared for and their estate plan is executed properly.

I am not suggesting that more senior advisors should be summarily dismissed, only that they should have a solid answer to the question above.  A study by financial accounting firm EY Advisors shows that only 40% of older advisors have a succession plan ready to execute. If your advisor is in this minority, you owe it to yourself to see that plan is one that serves you and your family well, and the advisor should be willing and able to articulate the plan to you.

Not all succession plans are created equal.  Investment firms across the country are struggling to find qualified talent to care for their clients for decades to come.  The EY study states that only 5% of investment advisors are in their 20s, with just 22% being below the age of 40. Simply stated, in the search for a long-term successor, there aren’t many great candidates to choose from.  This has led to a great deal of hiring from outside the industry. A 2018 InvestmentNews Survey indicates that over half of service advisors are hired from someplace outside of existing brokerage firms or registered investment advisors.  It is not at all unusual for investors to be unhappy with the products of poor succession planning by financial advisors. According to EY, a third of advisory firms saw 50% or more of their clients leave after a transition in leadership.   This is a good reason to get to know the future leaders of your current firm.  What are their education and background? Can you envision your family working with them into the distant future?

Finding and hiring an advisor that you know, like, and trust can be a daunting task.  You owe it to yourself to make sure that the next time you go through the process will be the last.  If your family has goals beyond the next eight years, the time to start looking may be now.