RIA Succession Planning

A recent study indicated that less than one-third of advisors age 55 and older have not identified a successor for their practice, and more than half of advisors over age 65 do not have a succession plan in place. When developing a succession plan, there are a few key factors.

Timing

When determining the timing of your retirement, consider how long you want to remain active in your business. You may want to set a deadline for achieving any pre-retirement goals, as well. 

Evaluating the age of your client base is also important, as estimates indicate that more than two-thirds of bequeathed accounts are moved away from the previous account-holder’s advisor. Thus, advisors with older client bases face a greater risk of attrition, which could make the transition process more challenging and lower a firm’s valuation.

Successors

Internal Sale
Depending upon your objectives, you have different options when choosing a successor. If you’re planning to go with an internal sale, you’ll want to identify your successor as soon as possible. Finding the right person could pose a challenge and take some time. 

An internal successor could be an existing partner, employee, or colleague, or it could be a family member. If your candidate is an existing partner, you’ll want to draft a buy-sell agreement, which can be used to establish a strategy for facilitating the transaction and valuating the practice when the time comes. If you’re planning to pass your practice to a family member, now is a good time to explore options for gifting that could reduce tax liability. If you have an employee in mind, you’ll want time to prepare that person to take over the practice, and they will need time to secure the financing necessary for the purchase.

External Sale
If you don’t want to identify a successor, you can conduct an external sale and sell your practice outright. Currently, demand for practices is high, and less sellers are available. This has driven up competition and valuations, nationwide. You may reap a larger financial benefit by selling to a third party. 

External sales are not without their benefits to employees and clients — they could potentially provide access to more resources, investment options, value-added services, and advancement opportunities. 

Getting Started

If you haven’t considered your succession plan yet, it’s neither too early nor too late to do so. You can start by identifying your goals: figure out what you need to achieve them, evaluate where you currently stand, and begin developing a plan.

AdvisorLaw can help with all aspects of your succession plan full circle, including valuation/swot analysis, developing a timeline, going to market, buyer sourcing and vetting, financing, deal negotiations, contracts, and closing.

Learn more about AdvisorLaw’s Practice Migration and Succession Planning services. 


For a complimentary consultation, please contact:

Matt Durr, E.A.
Director of Mergers & Acquisitions