The Advisor’s Guide to Succession Planning

The Advisor’s Guide to Succession Planning

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The Advisor’s Guide to Succession Planning

by Commonwealth Financial Network

Over the years, you’ve likely had numerous conversations with clients extolling the virtues of planning for their financial goals. But when the focus is turned on you, do you have a hard time practicing what you preach? If so, you’re definitely not alone! According to a recent survey, only 30 percent of financial advisors have a succession plan in place, many of which are of “dubious” quality. If you’re in this camp, there are many reasons you might resist—it’s too overwhelming, you’re too busy, or you simply don’t want to retire. But whatever your rationale, having a sound succession plan in place can help ensure maximum protection for your clients, your staff, and your family. So, where do you begin?

Here, I’ve compiled a brief advisor’s guide to succession planning. It will give you a starting point, including questions you should be asking as you prepare for the next phase of your business and your life.

This question may seem obvious at first glance, but it’s actually one of the most critical components of any succession plan—and perhaps the most difficult to grapple with. After all, you’ve spent countless hours, days, and years building a successful practice. Are you really ready to move onto the next phase of your life? Here, it’s important to keep in mind that even if you decide to step down from handling the major wealth management responsibilities, there are options for you to stay involved in other aspects of your practice and continue to be compensated. If you feel you might miss being in the role of rainmaker, for example, a toe-in-the-water approach might work for you.

Don’t be surprised if you have a hard time answering this question! Talking it out with those whom you trust both personally and professionally may help bring your retirement vision into focus. Based on my conversations with many post-retirement advisors, I can tell you that those who have experienced the most successful transitions are those who were able to articulate their aspirations and experiences for both the immediate and the long term. The more poignant, the better.

This might surprise you, but compensation is rarely the primary concern for exiting advisors. In fact, for a majority of the firms we speak with, ensuring that their clients and staff are taken care of usually comes before any financial considerations. What will it mean for them when you transition out of your practice?

For example, have you built your firm’s culture based on service to clients? If so, you’ll want to ensure that any potential successor will approach client relationships, at a minimum, in the same manner that you have. You may also want to address the wants and needs of your current staff, as their strengths, intangibles, and financial impact add value to your business beyond basic multiple or discounted cash flow valuation metrics.

Next, it’s time to think about the type of succession plan that will work for you. Here’s a breakdown of the standard options. 

  • External sale. Expanding your succession search externally can provide multiple candidates who meet and advance your legacy. This could be advantageous for your clients, your staff, and the price you receive. If you go with this option, broker/dealer conversion will be necessary. Working in concert with a broker/dealer that has demonstrated excellence in its transition processes, however, can help provide a positive transition for everyone involved.
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