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.
  • Internal advisor sale. Is there an individual affiliated with your current broker/dealer whom you feel would be a good match for your practice? If so, this avenue can be convenient in that a broker/dealer conversion is not needed, with one caveat: When there are long-standing personal relationships between advisors involved in a buy-sell agreement, there is a tendency for the buyer to sell his or her practice below market value.
  • Associate advisor. Hiring an associate advisor and grooming that individual can be a great way to continue the business that you have built. But this option can take a number of years in terms of training and development, so you must weigh the cost of adding these tasks to your plate against the benefits of having someone in place to take the reins when the time comes.

Once you decide on your action plan, be sure to document client service and operational processes to clarify repeatability of your business model. This will help uncover synergies with any potential buyer.

Last but not least, you should put some thought into which financial metrics—beyond the client service processes and relationships—best demonstrate the value of your practice. Some of the key metrics you’ll need to compile include the following: 

  • Asset breakdown. This includes total assets, assets under advisory, annuity and insurance, and health care.
  • Revenue breakdown. Recurring revenue, nonrecurring revenue, and commissions should all be accounted for. Here, best practice is to calculate annual revenue for the trailing 5 to 7 years.
  • Practice breakdown. Segmenting your practice by age bands (e.g., <30, 31–50, 51–70, 70+) to demonstrate where the households and revenue are derived can help showcase the health of your practice.
  • Other. Quantifying the number of households, average tenure, and new client growth are just some of the other factors that will highlight the value of your firm.

Once you’ve found a potential buyer, clearly map out the steps with your successor to transfer the client relationships. Depending on size and sophistication, be aware that this transfer process can take anywhere from 3 to 12 months. Once you have a deliberate, comprehensive agreement in place, an attorney should verify that all of your requests have been accurately documented, and an accountant review can help minimize potential estate taxes upon the sale.

As you can see, this process can be quite involved, and there are many questions to ask yourself along the way. But the time to think about succession planning is now. With a solid plan for the future of your busines, your clients, and your staff in place, you will be well prepared when the time comes to enjoy the retirement lifestyle you have worked so hard to achieve.

Do you have a succession plan? Which key metrics will you use to demonstrate the value of your practice? Please share your thoughts with us below!



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 Commonwealth Financial Network is the nation’s largest privately held independent broker/dealer-RIA. This post originally appeared on Commonwealth Independent Advisor, the firm’s corporate blog.

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