Will Brennan has experienced two sides of the advisor succession challenge in his young career.
The first came in 2018, when he moved from Chicago to Colorado and worked at a husband-and-wife-run advisory that didn’t present a path to equity, partly because of the potential for control of the firm passing to the founders’ children. The second side came in 2021, when he jumped to an RIA that looked more promising: the owner wanted to sell to a junior advisor in a few years. The problem, as it turned out, was that a successful firm doing about $2 million in revenue would be selling at about a four-times multiple.
“I didn’t have $8 million that I could just write a check for,” said Brennan, who is 38 and has been advising for about 13 years after starting at Northern Trust in Chicago. “It would be a long earn-out—maybe 10, 12 or 15 years, and the owner didn’t want to be there for that long.”
Brennan’s response? In 2023, he launched his own firm, Park Hill Financial Planning and Investment Management.
“I think the combination of those two things makes people like me say, ‘Hey, instead of going down this big acquisition route, and because I don’t want to work at a big firm with a 1% or 2% stake, the only way to go is to do it on your own and start from scratch,’” he said.
Brennan’s experience is indicative of many young advisors working in the RIA space. Often stuck between owners who don’t have clear succession plans, or equity stakes that are too rich for them to afford, young advisors can be a flight risk at a time when growing RIAs need them more than ever. Meanwhile, widespread consolidation presents another challenge, with RIA aggregators potentially losing the next generation of talent they hope will come with the acquisition.
Will Brennan: Two failed successions led him to start out on his own.
How RIAs respond to this moment will shape the sector’s makeup in the coming years, said Pradeep Jayaraman, president of Bluespring Wealth Partners.
“It’s a two-part challenge,” Jayaraman said. “One is for G2s to feel empowered, and [two is] for G1s to have the confidence that they can ultimately leave the firm both from a client relationship as well as from an executive standpoint.”
According to a recent survey commissioned by Kestra Financial and Bluespring Wealth Partners, less than half (41%) of first-generation advisors have transferred equity to successors, and just 6% of those planning to retire within 10 years have a fully documented succession plan. Another 29% say their next generation advisors can’t afford to buy the practice.
When it comes to next-generation advisors, one in three who took the survey said they would consider leaving their employer if a clear succession timeline is not in place.
“The best firms don’t wait for G2s to ask [about ownership],” said John Orsini, a director at consultancy and M&A shop Marshberry. “They lay out a clear pathway to partnership and explain what it really takes to get there.”
Orsini said owners don’t just have to give ownership away. They should tie equity to areas of the business that make it sustainable and increase value, such as leadership, growth and culture.
“Expanding the capital table is not about giving away the pie,” he said. “It’s about growing it together, so the firm stays strong and attractive to future partners.”
False Advertising
Dann Ryan, 39, founder and managing partner of New York-based Sincerus Advisory, said his first RIA job had a verbal agreement to give him a stake as a partner in 10 years. Ryan said he received promotions and performed his job well throughout that period.
“Then, 10 years later, I got promoted to a newly created principal role,” he said. “I asked how much equity that was, and it was none, of course. So I left shortly thereafter. It’s a pretty common story.”
Ryan said that, in the current environment, “promises don’t cut it” when offering younger, successful advisors equity.
“It’s a relationship business,” he said. “You’re building these relationships with the intent to keep them forever. … If you’re going to be passed on to a new firm and not have control of that and never be able to leave again and keep your relationships, that’s a big driver [to go independent].”
Dann Ryan: Promises don’t cut it.
Joseph Brown, 49, answered a job posting that promised a path toward ownership. The newly minted CFP, who had worked as a personal finance instructor with the U.S. Coast Guard Academy, said things began well. He started managing a roster of active-duty military and veteran clients, further honing his skills in a high-demand specialty area. After the first year, however, it became clear that the owner was not ready to offer him an equity stake.
“I realized that we were still another year before we would even be able to consider whether the business would be ready to sell,” Brown said. “There was no succession plan coming.”
Brown did the math and decided he needed about 20 clients to break even. Although he couldn’t bring existing clients with him, he felt confident he could do so through referrals and grassroots marketing, which he does over platforms such as LinkedIn. He also signed up with APFORIA, a platform for independent, fee-only advisors with a focus on military clients that helps with compliance and other business operations.
Now, he runs his independent practice, Always Ready Financial Planning, and hopes to surpass his former compensation in about two years.
“It was this confluence of things,” Brown said. “It made a lot of sense for me to jump out and go solo.”
Joseph Brown: There was no succession plan coming.
First Gen Hesitancy
Bluespring’s Jayaraman said the first step toward a solution is for first-generation advisors to focus on training and mentoring junior advisors without fear of losing the business. However, that can be difficult for owners who built their firms from the ground up.
“These people have poured their blood, sweat and tears into their business,” Jayaraman said. “When do they graduate into building an enterprise? That’s when they need to start putting processes and structures in place, such as career tracking.”
A 2023 white paper by consultancy DeVoe & Company found that 34% of sellers feared losing control, which was followed by selling to the wrong buyer (23%), change in client care (22%), giving up the leadership position (8%) and uncertainty about staff opportunities (8%).
Scott Cohen was on the other end of some of these issues when he started his career working for a firm run by his grandfather and father. Initially, he had been “anointed” as the successor. But as he reached his 30s, and then his 40s, he realized no transition was happening. Instead, he bought out his stake and started his own RIA, CD Wealth Management, based in Dallas.
“It was a family business, so we did it the right way so we could have Thanksgiving together still,” Cohen said during a media roundtable in New York.
Cohen built the firm up over the years as a Kestra affiliate, eventually selling to Bluespring in 2022. But he was also determined not to have the same thing happen to his staff as had happened to him, so he kept a succession plan in mind from the start, he said.
“It was really important for me to identify the next generation of talent,” he said.
One person who stood out to him “from day one” was Ilona Friedman, who started out working in various capacities at the firm before becoming a financial advisor. Earlier this year, Cohen named Friedman the firm’s CEO even sooner than Friedman had expected.
“One of the mornings on our company retreat, Scott said, ‘Okay, I think we’re ready for Ilona to become CEO today,’” Friedman recalled. “The shared vision was for me to become CEO down the road, but it just came a little sooner. It was a pleasant surprise.”
(L-R) CD Wealth CEO Ilona Friedman, Executive Chairman Scott Cohen and CIO Andy Dropkin: A clear, if not early, succession plan.
Private Equity Push
Private equity money and its role in RIA consolidation also create opportunities and risks for the second generation.
Jim Dilworth, a strategic advisor with Echelon Partners, said second-generation advisors may often find themselves at a firm being acquired by a larger RIA. That can be exciting at first, with advisors meeting up with a larger organization and encountering talented, motivated peers. But it often doesn’t come with a compensation increase or a path to ownership.
“It comes down to figuring out how the industry can solve the issue of incentivizing the G2,” he said. “How do you rebuild the equity post-transaction to incentivize the advisors who may be disgruntled post-transaction? They’ve seen their boss make a ton of money, but aren’t seeing the potential for themselves.”
The PE-backed aggregators know the issue, and at least some are working to address it.
Kevin Corbett, mega-RIA Mariner’s managing director of corporate development, said his firm’s acquisition strategy is closely tied to the second generation of talent it can attract and ideally cultivate and keep with the firm.
“That next generation, candidly, is the lifeblood of our industry going forward,” he said. “The race for talent right now continues to be at an all-time premium for firms like ours …. each and every deal that I evaluate, I’m looking to see what the next generation of talent is that’s a part of that firm today.”
Corbett said that, in some cases, junior advisors may not be a cultural fit and will leave. But in general, Mariner “hopes people don’t jump” and works closely with sellers to communicate with second-generation advisors and discuss their future path once the deal is complete.
“When the next generation is involved in the conversations, there’s certainly more buy-in and understanding,” he said.
When it comes to what Mariner can offer younger advisors, Corbett points to a few interlinked areas. One is training programs and peer groups. Another is working with clients across adjacent areas, including estate planning and tax strategies. A third is being able to call someone when they need help, as opposed to waiting on an owner-operator who may have limited time to help them.
“It actually ups their game in terms of their competitiveness and their ability to feel confident in perhaps that next situation with the client,” he said.
Corbett admits that some advisors have an entrepreneurial spirit and want to “have their fingerprints” on leading a region or division. He said Mariner has leadership development programs for those types of people.
“We want to take individuals who are already raising their hands to promote them out of the client service role into a regional or segment leadership,” he said.
No Going Back
For advisors who do venture out on their own and succeed, those enticements may not be enough to convince them to return to a larger RIA.
Young founding advisor Ryan admits that, as a business owner, he has many responsibilities and vulnerabilities, ranging from hiring support staff to dealing with regulations. But he also can’t see himself going to work for someone else.
“Is there a chance of bringing guys like me back into the fold? It’s hard to see,” he said. “I’m not going back to things like having PTO days—that’s gone in my world. … I’m not going back to being a W-2 employee.”
Advisor Brennan said that, when he considered the strong client demand for wealth management in Colorado, he didn’t see a need to be with a larger firm or name brand to manage tens of millions of dollars in client assets in a short time.
“You don’t have to be a billion-dollar firm to compete with a billion-dollar firm,” he said. “Going to work for somebody for a small equity stake never crossed my mind.”
He said it helped that, at his last firm, he saw and experienced what it meant to run an RIA at all levels.
“I saw what it was like to have full ownership,” he said. “At that point, I couldn’t go work for somebody else.”
