It may seem ironic that financial advisors, many of whom make a living planning for their clients’ retirements, may not have a complete plan in place for their own retirement. And while advisors claim that developing a succession plan for their business is a top priority, studies have shown that often-times this isn’t the case.
In fact, a January 2019 study by Franklin Templeton found that among financial advisors who plan on transferring their book of business, less than one-third of them have a succession plan in place–even when 50 percent of them plan on selling, merging with another firm, or departing the business altogether within the next three years.
What type of plan works best for you?
There are three standard options when it comes to finding a buyer for your book of business. Firstly, you can find a buyer external to you, your firm and your broker-dealer. This type of plan gives you the greatest number of potential buyers to choose from, but it also means someone will have to convert broker-dealers. Having a broker-dealer with a dedicated transitions team in place makes the process easier and helps to preserve your book of business.
You can also sell to an advisor internal to your firm or broker-dealer. While this might not offer the wealth of choices that selling externally can provide, it means you can find a buyer you know and trust with your clients. However, this may also mean you end up selling at a lower price given the trade-off of trust and convenience.
Finally, you can hire a younger advisor and groom them to be ready to take on your book of business by the time you retire. This has many of the same benefits as the internal advisor strategy, but it often includes years of training and mentoring. If you’re willing to put in the time to find and train a successor now, this can lead to a seamless transition in the future.
What you should stress/pay attention to
Perhaps the most important aspect of finding a buyer is culture. Obviously, if your philosophy toward serving your clients doesn’t match up with someone else, you won’t want them taking over your business. So, one of the first things you should do is sit down with your prospective buyer and make sure you have the same values toward financial advising. This way you can rest easy in retirement knowing your successor is continuing your legacy.
Obviously the numbers are also an important part of the succession planning process. So, you’ll need to work out the metrics to successfully communicate the value of your brand. This includes the breakdown of your assets, revenue, type of clients, and costs. If you can’t typify your business in this way, you may want to reconsider if you’re business is ready to be passed along at all.
It can be complicated, so why not get help?
The truth is many financial advisors put off creating a succession plan because it can seem like an insurmountable task. That’s why having a broker-dealer or RIA with a full-service transitions team can make all the difference.
Reach out to the award-winning NEXT Financial Group, Inc. Transitions Department at 877-876-6398 ext. 4045 if you’re interested in learning more about succession planning.
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https://blog.commonwealth.com/the-advisors-guide-to-succession-planning
