America’s aging population shows importance of succession planning for financial advisers, clients

America’s workforce is in the midst of a generational transition as baby boomers near retirement and financial advisers need to plan ahead for the sake of their clients and their businesses, according to a financial services industry expert.

The baby boomer generation comprises just over one-fifth (21.45%) of the U.S. workforce, and about 41 million from that generation are currently in the U.S. workforce even as about 10,000 Americans reach retirement age each day. In the financial advisory industry, the average age of an adviser is in the low- to mid-50s, but surveys have found that less than half of advisers have succession plans in place.

“There’s a difference between a continuity plan, which is more for death and disability, and a succession plan, which is more about retirement,” explained Jeff Vivacqua, president of growth and development at Cambridge Investment Research. “The first thing is to get them to remember that they’re a small business owner, we want to protect their largest asset, and let’s do that first by doing the continuity plan for death and disability, and then work up to the ideal strategy for succession which is their exit and how they go out.”

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“It’s the client’s best interest… it’s how do they build a plan that continues the investing relationship with the client into the future generations, whether it’s after the current financial professional or after the current client into that client’s next generation of where their estate may go to and how that’s dispersed,” he explained. “If we can cover both of those things, then we’re building a foundation to build an ideal plan.”

Vivacqua said it’s important for financial advisers to share as much as possible about continuity and succession planning with their clients to ensure they aren’t worried about their adviser’s ability to help take care of their financial needs in the future. 

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“The more that they can share and say, ‘If anything were to happen to me, death or disability, here’s who you call.’ They could be on their team today, it could be another adviser that they have a plan with,” he explained. “It gives the client that peace of mind, and then they can talk through what happens today. But in the future, when the succession comes, they’ve been talking to them for years, so they know as they build their ideal exit it’s the same conversation, it’s not new, it’s just the long-term plan.”

The aging of the U.S. workforce means there are not only more soon-to-be retirees in need of financial advice, but there is also an increasing number of roles becoming available to provide that advice.

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“The financial solutions industry is not immune to fewer new entrants coming into the workforce,” Vivacqua said, noting the decline in the total number of active financial advisers over the last decade. Data from the Bureau of Labor Statistics showed there were about 330,000 financial advisers as of 2021, but Vivacqua said more recent figures put that number closer to 280,000.

“So as an industry, we have to develop new talent. We’re seeing the average age of financial advisers, depending on which survey you look at, it could be anywhere from 52 to 59 years old. Cambridge is on the low side of that band, we’re at 53 to 54… We still have to develop new financial advisers, attract them to the business, because there are other advisers on the other end of the age spectrum that are looking towards retirement,” Vivacqua said.

Cambridge Investment Research is an independent broker-dealer with around 4,000 independent financial advisers located across the country who process their business through Cambridge’s platform and are supervised by the firm.