Succession Planning Is a Fiduciary Responsibility

Financial advisors: You owe it to your clients to ensure they’re cared for long after you retire.

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When a financial advisor retires without a lot of notice, their clients’ lives – and perhaps the lives of their families – are likely to?be significantly impacted. Which raises the question: Do advisors have a moral obligation to assure their clients will be cared for in the future??

The fiduciary responsibility of financial advisors to their clients is one of the most discussed and debated issues in the wealth management industry. For example, the U.S. Department of Labor has recently proposed that advisors assume the mantle of fiduciary when they even talk to clients about IRA rollovers. But it took a newsletter from Jerry Brennan , a recently retired Financial Advisor at Baird, to get me thinking about fiduciary duty as it relates to the responsibility advisors have to ensure their clients are cared for when they leave the profession. In that newsletter, Jerry asks:

Since life is about those three ‘M’s (Meaning, Money and Medicine), what happens when a professional relationship changes, suddenly or by design? Your life and perhaps the lives of your family will be impacted. … What happens if your Financial Advisor passes away unexpectedly, is incapacitated or decides to retire?? Do you know who would assume responsibility for your financial affairs?

The demographics of aging advisors is making this issue particularly salient. A 2024 report by consulting firm Cerulli and Associates found that more than 100,000 advisors plan to retire over the next 10 years – that’s more than one-third of the industry’s current head count. Adding urgency is the evolution of our industry from a sales-driven business to an advice-driven profession to which our clients entrust a growing share of their personal and professional lives. At the intersection of these two wealth management trends, of course, is the client: Who will assume responsibility for advising them on their professional and personal affairs in coming years? ?Who will be “assigned to their relationship?” And, critically: How confident are clients that the financial services firm will prioritize their interests when those decisions are made?

Data from Cerulli and Associates suggests that clients aren’t confident at all. And how could they be, when one in four advisors nearing retirement are unsure of their own succession plan ? According to Barron’s :

• 14% of surveyed advisors planned for an external sale upon retirement
• 26% (I would emphasize only 26%) had identified a successor within their practice
• 26% had no formal plan at all.

As a Cerulli representative reported in the article, “I think that’s a very fair question that many clients don’t know to ask: ‘What is your plan for transitioning your clients down the road?’”

Calling that “a fair question” is an understatement. Any profession – be it law, accounting or healthcare – has a duty, I would argue a fiduciary duty, to ensure continuous service for their clients. That’s especially true in wealth management, where the results of careful planning, asset allocation and portfolio construction often play out over years, or even decades.

I asked Carol Moser, who heads up advisor team development at Baird, for her thoughts on what the wealth management industry needs to do to better meet our ethical responsibilities around professional succession. Here is what she had to say:

In Baird’s extensive work with pre-retiring advisors, we sometimes see a ‘cobblers-children-who-have-no-shoes’ scenario: The very advisors who have worked for decades helping their clients achieve retirement often neglect the need for their own planning around that eventuality.

When clients ask, ‘When are you retiring, and what happens to me when you do?’ it becomes an anxiety-inducing red flag that cannot be ignored. Those advisors who have identified a successor and initiated a transition three to five years ahead of their retirement are happy to answer that question and have the opportunity to reassure their clients while re-enforcing their selection of successors. Alternatively, those who have not planned for their transition will reach out to us a bit panicked, realizing they need to get their succession initiated sooner than later or potentially risk the loss of their clients to an advisor who will have a longer tenure in the business.?

Senior advisors need to realize that even if their clients are not asking about the advisor’s retirement, they are most certainly thinking about it. They may also be planning to move their business to another advisor away from the firm when their current advisor does retire.

When advisors begin a new relationship with clients, they ask for the opportunity to earn their clients’ trust. I believe an advisor’s final opportunity to deliver on that trust is to provide continuity of care when they themselves decide to retire. It’s not just a nice thing to do – it’s a moral imperative.

The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of?risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.?The views and opinions expressed here are those of the speaker and do not necessarily reflect the views or positions of the firm.