Succession Planning for Financial Advisors: What's Next

If you're considering retirement, you may be wondering how you can ensure a smooth transition - and extract maximum value from your business - with best practices on financial advisor succession planning.

It's never too early to start thinking about future transitions for your practice and professional legacy. Succession planning for financial advisors is important, even if you're just getting started or have years left before you want to retire.

However, not all advisors are thinking about the future. Only about two-thirds (64%)of financial advisors have a succession plan in place. Within the next 10 years, almost 40%of financial advisors are expected to retire. Yet, even among those advisors with plans for near-future retirement, one out of four say they are unsure of their succession plan.

While your plans may evolve over time, it's important to always have something in place and goals you are working toward. Let's dive into succession planning for financial advisors to better understand successful retirement strategies and the benefits of being proactive with your approach.

What Is a Financial Advisor Succession Plan?

A financial advisor succession plan is a strategy that details how you will pass ownership of your practice. While most succession plans center around how retirement transition will occur, the best plans will also include a defined strategy in the case of an emergency. Typically, the plan will address short- and long-term objectives to help position the practice for a successful transition.

For short-term planning, a contingency plan should answer: what happens if you unexpectedly pass away or become severely disabled and can't manage your practice?At a minimum, all advisors should have a short-term catastrophic plan in place. No one likes to think of devastating possibilities, but things could fall apart if you don't have a contingency plan established.

A succession strategy should also include long-term goals focused on retirement and your expected exit strategy. It doesn't matter if you plan to work for the next 20 years, retire in five, or stay on as a consultant after you retire. Getting a plan in place now makes it easier for you to prepare and meet your retirement goals. Succession planning for financial advisors might include eventual plans for:

• The outright sale of the practice (internally or externally)
• A transition of clients to a peer advisor
• Hiring a junior advisor to mentor as an eventual successor
• Passing your business down to your children or a family member

Your long-term succession strategy should include short-term objectives that help you reach your goals. Who do you need to mentor or how should you prepare your practice for the eventual transition? Being proactive with your planning allows you to take a slower approach toward directing that eventual transfer and enables a smoother transition.

Why Is Succession Planning Important for Financial Advisors?

Like everyone else, independent financial professionals need a retirement plan. If you're considering retirement, you may be wondering how you can ensure a smooth transition-and extract maximum value from your business-with best practices on financial advisor succession planning. However, even if retirement is not on your radar right now, unforeseen events, such as illness, disability, or death, can give rise to the need for a business continuity or succession plan.

Having a plan in place ensures the business, and its clients, are taken care of when a financial advisor-owner leaves the business. Read more about the importance of succession planning.

3 Benefits of Proactive Succession Planning

Is it worth your time to plan for retirement right now? Short answer-absolutely. Here are three benefits to getting a head start on your transition strategy.

1. Peace of Mind

A lack of planning could leave your legacy up for grabs. Don't leave the future of your clients to chance. After spending decades building your business and guiding your clients, you want to know that your efforts will be preserved.

Create a plan that ensures your clients will be taken care of and you can monetize your book of business. A solid strategy empowers your focus on client engagement and business-building efforts. Also, employees feel more confident remaining at a firm with a clear succession plan.

2. Make Your Business More Valuable and Marketable

Most people want to know you are prepared for changes ahead. Whether you are recruiting new advisors to your firm or engaging client prospects, people are more comfortable doing business with a practice that has an eye toward the future.

Younger financial advisors will want to join a firm where they have the possibility of buying equity or assuming a role in succession. Clients want continuity in their wealth management planning. And should you wish to acquire other firms prior to executing your plan, the existence of your succession plan is a plus for sellers.

3. Prepare the Next Generation of Advisors

Is your business going to become a family legacy? If you are working toward internal succession or leaving your practice to your children or grandchildren, formalizing your intentions lays the groundwork to build your successors' skills and groom them to ultimately take over the business.

A solid succession plan helps you work towards a gradual shift of power. Rather than scrambling to react, succession planning gives you time to think through and plan out the future.

3 Considerations When Creating a Succession Strategy for Your Financial Advisor Practice

Whether you are a financial advisor considering retirement or a next-generation advisor looking to grow through acquisition, you have an interest in the methodology surrounding succession planning. Done well, a succession plan maintains quality client relationships and allows for a smooth transition of the business.

1. Do You Know Your Practice's Value?

An advisory business is more than its assets under management or revenue. Your reputation, goodwill, and other intangibles are valuable elements of your practice. Don't discount them when establishing the value of your business.

Other aspects of your practice will influence its value, including the type of revenue generated and your particular client base. There are various calculatorsyou can use to get the ball rolling and third-party vendors can also provide professional guidance.

2. Have You Considered the Impact on Every Level?

Succession planning is a multi-faceted and multi-layered endeavor that is more of a process than an event. As you begin to create your plan, pay close attention to all of these components to ensure an optimal outcome:

• Management succession:develop emerging talent in your practice to help ensure the next generation of managers maintain priorities that align with your own.
• Ownership succession:who will own the business? This is not who will lead, manage, or run the company-though they could be. Generally, this refers to those who will benefit from profits earned by the business.
• Relationship succession:maintain a pipeline of strong managers capable of fostering important relationships.
• Cultural succession:make the continuation of your firm's culture a priority, so it will endure after you've turned over the reins.
• Leadership succession:find a leader who will be able to earn the respect, trust, and admiration of employees.

3. What Is Your Ideal Timeline and End Goal?

Ask yourself questions about what would be ideal for your transition out of the business. All of these elements will impact your planning and execution.

• Do you want to exit the business immediately through an outright sale, or merge with another firm and stay on during the transition?
• Would you want to groom a successor from your junior partners, or bring someone into your business for the very purpose of succession?
• Do you have children with an interest in succeeding you?
• Do you want to stay on in some kind of consulting capacity or do you want to have a clean break so you can focus on other things in your retirement?

Your answers here can help create an ideal, long-term succession plan. Additionally, make sure to create contingency plans in case something changes along the way.

4 Components of a Successful Succession Plan

How can you increase the likelihood of success in succession planning for financial advisors? Here are four things to keep in mind as you get your strategy in place.

1. Put Your Plan in Writing and Socialize It With Your Employees and Family

Planning for the future is second nature to financial advisors. Making sure all stakeholders-including your employees and your family-are aware of your plans will go a long way toward a smooth transition. An added bonus: their insights about you and your business can be very helpful during the succession planning process.

2. Create a Detailed Client Communication Plan

Once it's time to implement your succession plan, you need a way to ensure your clients are informed of what is happening, why it's happening, when it's happening, and how it affects them. Helping them understand exactly what it means to them is imperative for keeping trust and fostering loyalty.

Unhappy or confused clients will transform the most carefully constructed plan into a potentially business-ending disaster. Learn more about common client communication myths.

3. Know What Your Next Chapter Looks Like

Business owners who do not put effort into figuring out what "post-work" life looks like are often surprised by how difficult the transition is. Protecting your life's work and your clients is important. Ensuring you have a plan to enjoy the fruits of your labor, whether it's traveling, volunteering, or taking it easy, is the all-important final aspect of your succession plan roadmap.

Start the succession planning process with the end in mind. Use your goals and priorities to help inform your decisions, and your succession plan becomes a natural part of your business' life cycle. With a solid succession plan in place, you'll be protecting your clients, your family, your legacy, and the investment of time, effort, and money you have put into your business.

4. Get Professional Advice and Support

You don't have to create a succession plan all on your own. An outside perspective can sometimes spot the gaps or help provide insights you might not catch when you are close to the situation. Bringing on a team of seasoned professionals to help facilitate your transition can make it easier to navigate complexities, anticipate challenges, and help ensure a seamless transition for the long-term success of your practice.

Ready for professional help? Reach out to AssetMarkfor resources and support to get your business on track to help meet your long-term goals.