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Succession Planning: Not Just For the Old and Nearly Retired

Succession Planning: Not Just For the Old and Nearly Retired

One of the most common misconceptions regarding succession planning is: “I’m young and healthy.  I’ll think about succession planning when I’m closer to retirement.”

This mindset could not be more wrong! You can’t anticipate what life has in store for you. More importantly, you don’t know what you may possibly be missing out on by not planning. Below is one such real life example from a partner I’ll call Harry.*

Following a disagreement on the path forward for their RIA, Harry split from his partner to establish his own firm in a small town in New Jersey in 2011. The split was amicable, and Harry took a few clients and about $100 million in assets. In the first couple of years, Harry experienced great growth—he gained new clients, had complete freedom on how to service them and had flexibility with his time.

At the age of 45, he finally felt like a true entrepreneur. He hired a part-time assistant to help with administrative duties, but he kept his operations lean and built a very profitable business.

All was going well, until he was diagnosed with cancer. It had progressed significantly and was discovered fairly late. There was still a good chance for a full recovery, but he suddenly found himself being kept up at night by two questions:

  • What happens to my clients if something happens to me suddenly?
  • What happens to my family?  

Harry was right to worry about these things—his assistant Tom couldn’t service Harry’s clients, so Harry would be failing to fulfill his fiduciary duty. Furthermore, he wasn’t properly safeguarding the financial future of his family.

So, Harry did something a lot of advisors do. He spoke to his friend Bill down the street who managed an RIA with $400 million in assets; Bill agreed to service Harry’s clients in the event Harry no longer could. What Harry didn’t take into consideration was that while Bill had a team, Bill still managed over 400 client relationships himself and lacked the physical capacity to actually take on Harry’s clients. More importantly, Bill didn’t have the capital to pay Harry’s family anything close to fair market value for his business.

Fortunately, Harry made a full recovery, but his clients were worried. Harry even lost a couple of referrals because he didn’t have a good answer for them in the “What if…” scenario. Finally, he realized he needed to take concrete steps to protect his family and clients.

He conducted a search for a firm that would match his ideals and philosophy. After meeting almost twenty firms through recruiters and headhunters, he finally found a firm that was the right fit for his clients and for him. He established a relationship with the firm’s founder and senior team members and did his due diligence on their numbers and culture. The deal they offered him was attractive, but what was more attractive was the fact that they were backed by a well-respected investor in the space who had the necessary capital to support the transaction. The more Harry got involved in the process, the more he was convinced he made the right decision.

In fact, Harry started off the process thinking he would sell and walk away, but the firm he chose greatly appealed to him. He realized he could actually make valuable contributions as a team member, even though this was a much larger firm managing over $1 billion in client assets. He ultimately merged his firm with this firm and became an equity owner in the larger business.

  • How did his clients take it? Every single client was relieved that Harry now was part of a firm that thought like him and would step in for him if needed. He received five additional referrals in the first month after his transaction.  Since he no longer had the responsibility of running his back office and compliance processes, he could center his efforts around providing the best and most creative solutions for his existing and prospective clients.
  • How did his family take it? With the backing of a new firm to handle his back office and compliance needs, Harry had more time to spend with his family. He also received a fair value for his business at predominantly long-term capital gains, securing his family’s finances.

It has been almost a year since the transaction, and the merger could not have gone smoother.

What can we all learn from Harry’s experience?

  • Your succession plan should be a robust one, not just with any RIA down the street. Choose a firm that is aligned with your values, has the capacity to take on additional clients and has the capital to appropriately compensate you.
  • You never know what life has in store for you, so don’t wait until it is too late to think about a viable continuity plan for yourself and your clients.


*All names and locations have been changed to protect privacy

Anita Venkiteswaran is a Vice President at Focus Financial Partners where she is responsible for business development and acquisition activities.


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