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Financial Advisor Succession Planning: Start Early

Financial Advisor Succession Planning: Start Early

As the owner of a successful financial advisory practice, one of the most daunting challenges you will undertake is succession planning for your business. The advisory business is more sophisticated than it was just a few years ago and determining when and how to transition your practice is more complicated.  Fifteen years ago the process was much simpler.  In those days it seemed like the leader of the firm simply announced who was taking over and the process seemed to work. Today it is not so easy. If you are thinking about your own succession plan, here are some best practices for you to consider as you are working through the process with your own firm.


Start Planning Early

When is the best time to start thinking about succession planning for your business?  NOW! As an advisor you develop the financial planning process by asking deeply personal questions about our client’s current situation and linking the plan with long term goals and objectives. The succession planning process is no different.  It begins with deep thought about your own objectives and current financial situation and takes into consideration the following key questions:


  • How much is your retirement lifestyle dependent upon the sale of the practice?
  • Are you mentally and emotionally ready to step aside?
  • What is the most advantageous way to receive the payout?
  • Lump sum or single payment?
  • Do you plan to sell your business to a senior or junior partner?
  • Is a family member interested in taking over?
  • Will your broker/dealer help with the process?
  • Will you use the services of an outside, unbiased platform?


Develop a Process

It is crucial to develop a succession management process that your firm will follow. Every practice is different and each succession plan requires a well thought out game plan. To achieve the best results it is important that the succession plan is tied to the overall strategy of the business.

This link is critical, since it provides the opportunity to affect the firm's long-term goals and objectives and in the event of an unexpected scenario such as the premature death or disability of a principle; the firm should know how the next leader will be selected. Otherwise, the firm may be open to political infighting or implosion.


Identify and Nurture Internal Talent

One of the most important questions that you must ask is whether you want to transition to an internal candidate, or sell your practice on the open market.  If you’re interested in internal succession, which most advisors are, it may be wise to start identifying candidates among your team who might be able to lead the business one day. Smart firms don't wait until it's time to elect a new managing partner or other key player in the firm. They use a continuous identification process to select future leaders and they focus on developing the unique set of technical, professional, client and leadership competencies required for the top position.


Give Yourself Time

Most heads of planning firms initially hope to transition their businesses to their employees. However they frequently don’t allow themselves enough time to effectively make that transfer. It is suggested to leave at least a five-year window to complete the process, and there is nothing wrong with starting much earlier. As counterintuitive as it sounds, those whose businesses are in the early growth stages should start to envision at least the broad outlines of their exit strategy. It’s never too early to start!



Phillip Flakes is Co-Founder and CEO of Succession Link

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