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Putting Together a Succession Plan: Tips 5 - 7

These three tips address getting advice, creating documentation and coordinating the transition.

There are multiple phases to a succession plan. Understanding which skills are required at different times—and taking advantages of resources available to help make specific decisions—can help smooth the entire process. Here are tips five through seven to help find a potential successor and structure a successful transition.

5. Get advice on structuring the deal. There are several ways to structure a succession plan, and the right approach will depend on both the buyer’s and seller’s goals. It’s also important to remember that transactions in highly regulated industries like finance can be tricky. Working with a professional to help structure your deal can help avoid unintended consequences and regulatory landmines. It’s also important to get input from a tax professional to help structure a deal with a full understanding of the potential tax implications based on current laws, and potential future changes in elements like capital gains treatment.

6. Create the proper documentation. Document all the details of your succession plan—not just for legal reasons, but to act as a roadmap for you and your successor. Hiring the right attorney is critical for this step because the documentation should be industry-specific and acceptable to your firm. Often, your firm’s internal resources can help with documentation.

7. Coordinate the transition. When it’s time to begin the handoff, both buyers and sellers share the responsibility for creating a transition that works for everyone—especially clients. A succession plan should include a detailed roadmap for handling back-office tasks like moving accounts, as well as a plan to communicate the change to clients. Sellers should plan to offer support during this process to help show clients that you’ve handpicked a successor who you believe will be a trusted partner for their needs well into the future.

While there are specific skills and expertise required at different phases of this transaction, being able to oversee the entire process can be a skillset in and of itself. Some advisors may prefer working with a succession planning expert who can help coordinate the entire process. If you choose this route, be sure to look for someone with experience developing succession plans, but who also:

  • Knows the advisory industry.
  • Understands the industry’s unique legal and regulatory issues.
  • Has experience with the tax implications of succession plans. 

Watch, Succession Planning: The Challenges Financial Advisors Are Facing