Tips To Begin Planning Your RIA Succession

Values of registered investment advisors, or RIA, businesses have skyrocketed over the last decade. Today, RIA valuations are at historic highs. With the Russia-Ukraine conflict barreling on and inflation continuing to rise, aging advisors should begin succession planning now.

As you embark upon the next chapter of your business, adhere to these six tips: 

  1. Start planning today.
  2. Always keep the end in mind.
  3. Find out what your business is worth.
  4. Seek expert assistance.
  5. Never leave out contingency plans.
  6. Don’t be distracted by easy gains.

Start planning today.

Even if you think it’s still too early to start preparing for your eventual departure, there are many reasons why it can be beneficial to begin planning now. Being proactive about your succession will earn you more money in the long run and open up new opportunities for you that may not have been there before. How? Simply put, you’ll amass more years of doing the right things that work for your firm. Having that experience and forward-thinking attitude gives you a better chance of growing and being successful. 

Always keep the end in mind.

Planning your succession early on gives you a better chance of achieving your firm’s goals. It also gives you the time to envision what you want the next chapter of your life to look like. 

As a financial advisor or RIA owner, your firm is most likely the focal point of your everyday life. Losing that major focus could cause some psychological stress, to say the least. Transitioning from day-to-day work obligations to a new experience — whether it’s taking up a new hobby, golf trips, international travel, or humanitarian activities — can be a tough adjustment. That’s why it’s important to take the time now to consider how you’d like the next steps of your life to unfold.

Here are some questions you should be asking: 

  • Do you plan on taking your time transitioning out of the firm, or do you prefer a quick exit? 
  • How much would you like to earn from the sale of your firm? What’s the least you’d accept?
  • Are you interested in finding an internal successor, or would you prefer to sell your practice outright? 
  • If you have children, would one or all be interested in carrying on the business? 

Find out what your business is worth.

Though you might not feel ready for this stage of the process, getting a proper valuation of your firm gives you more insight into your business than simply providing a dollar amount. A current valuation can help you meet your goals on time by showing you areas that should be improved prior to your exit. Did you overlook client acquisition activity and an aging client base because of the stock market’s steady gains? Health issues and other time constraints can also burden a valuation. 

Interested in a complimentary business valuation? Need assistance planning your succession?
Contact us today at (303) 952-4025 or click here.

AdvisorLaw’s valuation tool was developed in consensus with a top-10, national CPA firm. Our tool blends over 35 different data points — including revenue, client demographics, tenure, and numerous other factors — to estimate the fair market value of any wealth management or RIA firm. In addition to book appraisal, our reporting provides SWOT analysis, industry comparisons, and more — at no charge to you. Once a comprehensive valuation is secured and a purchaser is chosen, a buy-sell agreement can be created and entered into by the parties.

Seek expert assistance.

Planning your succession on your own isn’t worth the headache. Thankfully, there are financial and insurance consultants who are specialized in succession planning. Their specific knowledge can be extremely useful in creating the objectives that will allow you to attain your intended outcomes.

A succession coach can help you make sure you’re considering all of your possibilities. Cutting back on certain aspects of your firm’s services or limiting the number of clients, for example, may appear contradictory. However, doing so may free up time to focus on activities that increase your firm’s value.

It’s also a good idea to consult a CPA or tax attorney about the tax consequences of each option, as well as an estate planner about making sure your plan stays on track until your successor takes over. 

AdvisorLaw offers a one-stop solution with experienced attorneys who understand business law, securities law, tax law, and how to complete seamless transactions. One of our expert attorneys can provide counsel throughout the process so that you can rest easy knowing your succession plan was completed in adherence to best practices. 

Never leave out your contingency plan.

The greatest strategy to ensure a successful succession is to minimize the possibility of any unanticipated occurrences that could affect your timeline.  

According to a national survey conducted by the Exit Planning Institute, 75% of owners had seller’s remorse in the first 12 months after their transition. This could be because they believed that their company was worth more than its selling price or that the sale should have been timed differently, etc. On the flip side, only 4% of the study participants took the time to prepare their own contingency plans. 

Interested in a complimentary business valuation? Need assistance planning your succession?
Contact us today at (303) 952-4025 or click here.

In order to avoid anxiety and regret throughout the transition process, advisors and RIA owners should make sure their financial plan is as up-to-date and accurate as possible.

Key areas of your financial plan that should be figured out well in advance of your departure include:

  • choosing a retirement plan that is fully funded;
  • securing disability insurance; and
  • protecting your savings by using long-term-care insurance.

Notably, if your buyer plans to utilize a payment plan and pay in a series of payments, your life insurance plan must include creditor protection and could qualify for significant tax leverage.

Last but not least, diversify your sources of income. You would never advise a client to invest all of their retirement assets in a single stock. Isn’t it time you followed your own advice?

Don’t be distracted by easy gains.

According to a Financial Planning Association poll, a shocking 73% of financial advisors have not prepared a succession plan, despite 93% of them realizing that lacking a plan poses at least some risk to their financial survival. 

As we’ve highlighted throughout this piece, preparing for your succession strategically and well in advance of your departure can provide you with the inner clarity and confidence you need to advance in your career, as well as with more stability within your business and your finances. 

AdvisorLaw offers all of the relevant services to help you create a succession plan that works around your needs and goals. We provide complimentary business valuations and can help you develop an efficient timeline, take your advisory practice to market, and complete buyer sourcing and vetting. We assist and consult regarding financing, deal negotiations, and contract drafting, providing counsel throughout the closing process.

If you’d like to learn more about our services and receive a complimentary consultation, please fill out the form below:

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