According to Reuters, more than 40% of brokers are going to be retiring within the next decade or so, creating a hyper-competitive market to sell their businesses.
The story highlights a major problem for older brokers and a major opportunity for younger advisors. About 35% of the 300,000 brokers in the United States are 55 or older, and even more, 40%, of all brokers are going to try and sell their businesses in the next seven years, according to a study by Cerulli Associates.
The numbers are part of a larger looming sell-off of Boomer-owned businesses. According to a report from the California Association of Business Brokers, aging business owners will sell or bequeath more than $10 trillion in assets between now and 2035. For those in the advisory world, this equals a lot of opportunity for young advisors with the capital to expand, and an extremely competitive, and shrinking, window for aging brokers to cash out.
According to Reuters, banks bought nearly twice as many RIAs and trust companies in 2014 than they did in 2013, a number that is likely to go higher this year. But even as advisors age, they are largely unprepared to maximize their income at the end of their careers. According to the SEI Advisor Network, just 17% of advisors have a binding agreement regarding a succession plan, and only one-third of brokers have any plan at all.
The advisor industry is heavily skewed older; according to Reuters, just 26% of brokers are “in the younger half of Generation X,” which would put them in their mid-to-late 30s. With such a large percentage of the industry in their 40s or older, the younger brokers with cash on hand and an urge to grow their businesses have found a lot of willing sellers.
Reuters cites Steven Dudash, 38, who just acquired four businesses from retiring brokers. Dudash says he gets calls from at least three brokers a week who are trying to sell their business and retire. More competition means Dudash and those like him will likely be able to get more assets for less money, the longer older advisors wait to get out.
Right now advisors can sell for 200% to 250% of their annual revenue, but those numbers may not last forever, Reuters says. If that turns out to be the case, retiring brokers are likely to get less money for their businesses the longer they wait.
The heavy attrition rate also means there will be more assets in the hands of fewer advisors. With so many older brokers looking to sell to so few younger ones, wealth management will likely end up being a much more concentrated industry in the future, the Reuters story notes.
