Succession Planning For Financial Advisors

Three Key Essentials of Succession Planning for Financial Advisors

Who’s next in line to carry forward your legacy with the same grace and poise? To take care of your esteemed clientele with utmost concern and quality? To embrace your streak of ingenuity and proficiency for the time to come?

Who’s next? Have an answer for it yet? NO? Don’t worry; you aren’t the only one!

According to a study by the Financial Planning Association and Janus Henderson Investors, 73% of financial advisors don’t have a written succession plan, including 60% of those within five years of retirement.

To the maturing advisor population, succession planning is commonly perceived as a besetting end to their practice and to their value, which is not the case.

On the contrary, it’s more of dawn than dusk.

Succession Planning, not an End but a Beginning

Succession planning does not entirely imply retirement and exit. Instead, it’s an imperative effort that safeguards your practice, your assets and more importantly, your clients from unforeseen circumstances.

Succession planning is an attribute of risk management that ensures the longevity of your bequest when the leadership baton is handed off to the next potential suitor.

The FPA study shows that most advisors without a succession plan recognize the potential perils of not having one. 54% see a significant risk, and 41% see some risk. Also, 97% of them say they will create a plan at some point.

By and large, the typically cited challenge faced by advisors is finding the rightful successor, the perfect fit. Not too big or not too small. Take a look at the following considerations to gain a better insight on your hunt for the legit successor.

Three Basic Factors for Effective Succession Planning

  • Calculate the market value of your Business

Any buyer would want to know the market value of your business, the actual number that measures the worth of your advisory practice. Most succession-ready advisory firms across the country do not have a realistic estimate of their market value but are keen to round off to an approximate monetary worth.

This naive determination of market value creates a valuation gap between you and the buyer, where the buyer might end up disagreeing with your evaluation. This valuation gap is one of the main reasons that deals fall through, no matter the size of the firm. Employing a third-party source to appraise the value of your practice provides precision and clarity on where your firm stands in the marketplace. This also comes off as a beneficial opportunity for advisors to understand the key result areas of your business and increase the value of your practice progressively.

  • Independent Standing of the firm

It must be kept in mind that the buyer looks at your firm as one cohesive investment, inclusive of your practice, your clients, and market price. Your contribution shouldn’t be the sole identity of the brand; in short, your firm should be able to speak for itself.

Investors care about seamless business continuity and expect a succession transition that takes care of any possible service or clientele disruptions, resulting from the leadership advisor change. The solution lies in creating an environment that can stand on its own merit, without your presence. The competence is to make yourself dispensable without hindering the credibility of your book of business.

  • Fixed Price is Better

Even with a carefully chosen successor who adheres to your expectations and forecast, there will be differences in the services of the superseding advisor, shouldn’t really be in the grade of quality if your succession plan is a success. But there will definitely be differences in the effectual structure of the offering — the proficiency of the investor might be equal to yours, but will not be equivalent.

Therefore, buyers are naturally inclined towards acquiring fee-based advisory firms rather than commission-based, as the former guarantees more stable revenue than the latter in the case of succession. Also, fee-based advisory generates a predictable steady cash flow, which instills a sense of confidence in the potential buyer. More stability accounts for higher security!

Succession planning requires an early start but a long patient execution with meticulous groundwork. Whether you sell or merge, extra caution must be taken to implement rigorous introspection and evaluation. Succession planning isn’t as grim as its commonly perceived by most advisors, in fact, it’s all about owing to your clients who offered their loyal support from the beginning and more importantly, to yourself.

Visit us at to learn more about how Advisor Successions can make your succession planning easier and reliable! We are just a click away!

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