The ClientWise Blog

Financial Advisor Succession Planning: Do as I say, Not as I do

Posted by Chris Holman on Jul 31, 2012 10:01:00 AM

Business and succession planning expertise is an important expertise that many financial advisors bring to their clients. However, according to ClientWise research, less than one-third of all financial advisory practices are adequately prepared for their own business succession.

By definition, an “adequate” plan is:

  • Written,
  • Reviewed regularly,
  • Agreed to by a successor, who also has the funding plan in place.

One more interesting point. Financial advisory practices that have an effective plan in place earn more than double the profit as those that don’t.

Here’s a list of 6 Succession Planning Tips in a recent edition of Financial Planning, which provides financial advisors with a good start in framing this issue:

  1. Plan ahead and leave enough time for your departure. A five-year window is a good time frame to shoot for.
  2. Have a strategic vision for how you want to exit the business, as well as the legacy you’d like to leave.
  3. Use a trusted, outside advisor to provide objective input on what’s best for you, your family, your firm and your clients.
  4. Identify internal candidates to lead the business when you’re gone.
  5. In order to secure your best employees, find ways to link their success to the future success of the firm, e.g. equity ownership.
  6. Practice what you preach and spend some time thinking about your own retirement goals. Don’t leave a void in your life where your career once was.

For those financial advisors who intend to sell their practice as a means to fund their retirement, there are a host of additional important issues.

Many of these are related to the fact that there is a very-real demographic bulge of financial advisors in the U.S., who are in their mid- to late-fifties, who hope to wind down their careers and sell their practice in the next five to 10 years -- all at the same time. With the large number of financial advisors with this same intention the question needs to be asked: what are you selling, and to whom?

It seems probable that, in the coming years, buyers of financial practices can be very choosy because there will be so many practices available. Therefore, as the owner of a financial advisory business, you need to consider what your practice offers that would command a premium sales price today. If you haven’t created a business enterprise that offers sustainable value independently of you, what do you need to do in terms of installing processes and building your team that will create value so that potential buyers are interested and willing to pay the price you need to sustain your lifestyle and provide for your family when you exit the business.

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Topics: Business and Operations Management, Leadership, Succession Planning