The Importance of Succession Planning as a Financial Advisor

Succession planning is something you may assist your clients with, but consider how much thought you’ve given to the future of your own business. When it comes to succession planning for financial advisors, there are numerous benefits, yet roughly one-third of advisors lack a formal exit strategy. Early planning can make for a smoother transition when you’re ready to retire, change careers or simply switch gears.

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Benefits of Succession Planning for Financial Advisors

A succession plan is a formalized, written plan that details how and when you’ll exit your business, as well as what will happen to it once you’ve stepped away. Succession planning is important for any business owner who wants to pass on what they’ve built to someone else. For advisors, a succession plan helps ensure continuity and compliance, among other benefits.

Here’s what you stand to gain by having a detailed plan in place.

1. Continuity and Legacy Building

A succession plan allows the business to keep going, even when you’re no longer a fundamental part of it. If you want to leave behind a legacy and ensure that your clients continue to receive the same level of service they’ve become accustomed to, then a plan can be invaluable.

Planning gives you control in deciding:

• When to exit
• Who will step into your shoes
• What knowledge/skills to impart to your successor

Succession planning doesn’t mean that your successor will be a carbon copy of you, and that’s the point. Instead, it’s designed to give them a solid launching pad for stepping into your role with as little disruption as possible.

2. Enhanced Value

Some advisors choose their successor internally, while others look to an external buyer to purchase the business. Selling to an outside buyer can potentially allow for a faster exit and allow you to command a higher price if there’s strong demand in the market. Succession planning is also an opportunity to increase your firm’s value in the years leading up to a sale.

How you choose to do that is up to you. Some of the most effective strategies to add value include:

• Developing new service offerings to attract new clients or increase value to your existing clients
• Reviewing client profiles to look for growth opportunities, such as bringing assets held away into the fold
• Leveraging technology to develop workflows and systems that allow you to operate more efficiently while lowering overhead costs
• Hiring new advisors to increase the number of clients your firm is equipped to serve
• Retooling your marketing strategy to enhance your brand value and increase your visibility in the marketplace
• Building collaborative partnerships and leveraging them to attract new clients as part of a broader business development strategy
• Acquiring another advisor’s book of business to expand your client base

Including growth in your succession plan can support the goal of continuity and make your firm more attractive to prospective buyers, which can improve the likelihood of you completing a sale in your desired timeframe. Employees and clients alike will appreciate your forethought and planning in ensuring business continues as usual after the sale is finalized.

3. Retirement Readiness

You may spend a lot of time talking to your clients about their retirement planning goals, but what about your own? A succession plan requires you to think about what comes next, financially and professionally, once you’re ready to exit your business.

For example, will you continue to work after leaving your firm? If so, what will that look like? Some advisors choose to do consulting work once they leave their firms; others may teach or continue to advise clients on a part-time basis instead. Your retirement vision may be similar or completely different.

If you plan to sell your practice to an outside buyer, consider what you’ll do with the proceeds from the sale. Review all of your anticipated income sources and your expected budget post-exit, based on your desired lifestyle. Take the same approach as you would with your clients to create a comprehensive retirement plan that helps you bring your vision to life.

4. Peace of Mind

You care about your clients’ well-being, and you also want to know that what you’ve worked to create will be preserved long after you’re gone. A succession plan can offer peace of mind and reassurance that you’re leaving the business in capable hands.

Clear communication with your clients can help them feel better about the transition. It can also help with retention if your clients believe in your plan. While some clients may inevitably choose to take their business elsewhere, proactive planning can help foster loyalty in the years leading up to your exit.

Your employees also benefit when your plan for succession is already laid out. There’s no need for them to guess what role they’ll play once you’ve stepped away.

When Should Financial Advisors Begin Succession Planning?

Advisors should start thinking about succession planning at least 5 to 10 years before they actually plan to leave the business. Having a solid timeline matters when it comes to executing each step of your plan on schedule.

You may need a year or two to fully decide when you plan to exit, how you would like to exit and what you’ll do after leaving the business. It can take another few years to select and train a successor. The final few years of your plan center on communicating with clients, preparing the rest of your team for the transition, and ensuring that all compliance requirements for the transition are met.

A thorough succession plan also includes room for contingencies. For example, what if your chosen successor decides that they don’t want to take the lead after all? Your plan should offer a framework for what to do next if something like that happens. You may also create a separate continuity plan that outlines how the business will proceed when affected by a major event, such as a natural disaster.

If you feel overwhelmed at the thought of creating a plan, there are succession planning consultants who can help. These specialists can work with you to build an exit plan that aligns with your goals, needs and preferred timeline.

Bottom Line

The importance of succession planning for advisors can’t be understated. You’ve poured yourself into building your business, so it only makes sense to dedicate the same level of energy and forethought to your exit. Early planning gives you time to adjust your strategy if needed, and fully prepare both your team and your clients for what comes next.

Tips for Growing Your Advisory Business

• Targeting the next generation of clients is one way to fuel growth; revamping your marketing strategy is another. If you’re interested in attracting new prospects, you may consider partnering with an advisor marketing platform. SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
• If you’re thinking of selling your advisory business to an outside buyer, getting an accurate valuation is critical. There are different metrics you can apply to estimate your firm’s value; some focus on assets under management (AUM), while others consider your discounted cash flow (DCF). Understanding the factors that can affect valuation, including your AUM, projected growth and market demand, can help you develop a plan to maximize value until you’re ready to sell.

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