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.