NEW YORK (The Deal) -- There's a succession crisis in the independent investment advisory business, and there's a pretty good chance your adviser is doing nothing about it.
As a group, investment advisers are getting older. A business that boomed following the passage of laws that forced people to manage their own retirement has become far more competitive. Younger people are no longer attracted to it.
Even if they were, some of the incentives for independent investment advisers to sell their businesses are poor at best, according to Brooke Southall, managing principal of RIABiz, a Web site that reports on the registered investment advisory industry.
Southall says investment advisers often continue working into their 70s or 80s, since by selling they are likely to get what they might earn over the course of a year of two if they kept the business running. "The nature of the business is people don't really want to retire," Southall says. "The rational thing is just to keep it going for another five years and you'll get twice as much as you would have gotten by selling it and you still have a place to go hang your hat during the day."
And then what? The phrase "die with their boots on" comes up quite a bit in discussions about investment adviser retirement. It sounds heroic when cowboys are concerned, but not so much when it comes to professionals charged with a fiduciary responsibility to their clients.
A few private equity-backed firms have sprung up in recent years to try to drive consolidation in the highly fragmented industry, but how much success they will have remains to be seen. "A lot of advisers are just retiring and leaving clients in the lurch," says David Bugen, founding principal of RegentAtlantic, a Morristown, N.J. financial advisory firm.
There are some 300,000 advice-providing professionals registered with the Securities and Exchange Commission and FINRA, the securities industry's self-regulatory authority, according to Dan Seivert, CEO of Echelon Partners, a Los Angeles-based investment bank that serves the wealth management industry.
The vast majority, an estimated 270,000, work for large brokerage firms such as Bank of America Merrill Lynch (BAC) and Morgan Stanley (MS), or mid-sized ones like Raymond James (RJF). Some 30,000 are independents, spread out across roughly 12,000 firms, Seivert estimates.
While advisers at larger firms are also reluctant to hand off their business to younger executives in many cases, the fate of the independent firms, often referred to as registered investment advisers, or RIAs, is especially worrisome since most of them don't have a plan for what to do when their founder retires.
RIABiz's Southall appears to be virtually alone in his willingness to say -- publicly, at least -- that advisers have little if anything to gain from selling their businesses. However, he is worth paying special attention to on this point because he is one of the few people who thinks about the question of investment adviser M&A who doesn't appear to have an incentive to espouse the virtues of investment advisers selling their businesses.