The financial planning profession was conceived in chaos-the aftermath of the go-go mutual fund scandals of the late 1960s and the 1969-1970 recession-and it has grown stronger with every subsequent obstacle. In the 1970s, the term "financial planner" entered popular awareness despite (or perhaps because of) a brutal bear market, stagflation and the challenge of maintaining stock exposure while Business Week voiced current sentiment by proclaiming the "Death of Equities." The profession's numbers grew through the 1980s despite the limited partnership implosion, and the fiduciary standard entered the planning ethos as the tech bubble popped in 2001.

Eighteen months ago, the global banking and economic system teetered on the edge of collapse, triggering widespread pain and panic. Today, the profession (and this magazine) enters its fifth decade of existence navigating a complex swirl of trends that are profoundly changing the business landscape-not only for advisors, but also for their partners and service providers: custodians, broker-dealers, software vendors and an emerging new ecosystem of outsource service providers, coaches and consultants. This transformation could have the greatest impact on baby boomers approaching retirement, most of them with fewer resources than they anticipated.

The existence of certain powerful new forces-such as the expanded role of technology in practice management and the need for succession planning-is almost universally recognized. Others are more complex, threaded together into a sense that we have entered a period of unprecedented opportunity for advisors and the profession. Some of these trends were first suggested 11 years ago in Mark Hurley's groundbreaking Undiscovered Managers report, although they are playing out far differently than he had envisioned.

This article, an excerpt from my new white paper entitled The Future of the Financial Advisory Business: Opportunities, Challenges and Trends in the Second Decade of the 21st Century, offers a first look at some of these trends and how they will interact. It makes some dramatic conclusions, including a professionwide transition from practices to businesses, custodial platforms that function like smartphone-app environments, a Great Transfer of advisory businesses from one generation to another, a new "blue ocean" market, the demise of a rival business model and an accelerating consolidation of firms that will look very different from what the Undiscovered Managers report envisioned.

THE SHOCK FACTOR

Dramatic change in any profession requires two things: motive-represented in this case by two very different shocks to the system-and opportunity, which in this case comprises significant evolution in the tools and support structures that surround financial services practices.

Advisors hardly need to look up from their desks to recognize one of those shocks. The Great Recession market meltdown caused a decline in revenues across the spectrum of financial planning firms. Various studies captured the dizzying drop-off: FA Insight's 2009 report estimated that the average independent RIA firm saw assets under management decline 18% in 2008, while last year's Moss Adams report, compiled by Best Practice Research, reported a 13.6% decline. A similar 2009 study by Quantuvis Consulting cited declines ranging from 4% to 16%, depending on business model.

Advisory firms experienced this pain exactly where it would be most likely to elicit change-in the shrinking take-home pay of the founders/owners. The recent Moss Adams survey found that between 32% and 44% of owners reduced their compensation during the downturn, generally as a way to preserve their staffing and business capacity. Add to this the additional workload presented by anxious clients, and you have a powerful driver for advisors to seek greater practice efficiency.

WHO WILL BUY THIS WONDERFUL PRACTICE?

A second driver, which I call The Great Transfer, may prove to be even more significant. One of the most interesting and important statistics in today's advisory profession is that the average RIA founding principal and owner is 54 years old.

Pershing Advisor Solutions CEO Mark Tibergien frequently cites this number in his presentations at industry conferences. More interesting to Tibergien, though, is the fact that this average age is rising almost exactly one year for each calendar year-meaning that very few practices have been transferred to younger advisors. Indeed, the profession is moving inexorably toward a time when the majority of RIA principals will be over 60. Yet studies have consistently shown that only 20% of all advisory firms have a viable succession plan in place.

Among the roughly 29,000 advisory firms in today's marketplace, fewer than 100 transfer ownership each year, according to Pershing Advisor Solutions. Schwab Institutional's research shows that calendar years 2007, 2008 and 2009 saw more advisor M&A activity than previous years, but reports just 240 total transactions during that period. Stephanie Bogan, founder of Quantuvis Consulting in Redlands, Calif., reports, however, that transition and merger interest among advisors has increased more than fourfold, and 18% of the advisor population-more than 5,200 advisors, in other words-is interested in selling in the next five years.