Succession planning is not just something you help your clients with — it’s also something you should consider for yourself, especially when you run an advisory firm. Whether your end goal is retirement or transitioning to a new career path, it’s important to map out what will happen to your business, and your clients, when the time comes for you to step aside.

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Step By Step Succession Planning for Financial Advisors

Creating a succession plan takes time. You’ll need to identify your goals, select an end date, and communicate your plans to clients and employees alike. Here are some of the key steps to incorporate in succession planning as a financial advisor.

1. Determine the “How” of Your Succession

There’s more than one way to exit a business. You may choose to:

Sell or transfer the business to a partner or another member of your firm
Transfer ownership to one or more family members
Merge the business with another firm
Sell to a third-party buyer

The specifics of your business structure and operations can influence the path you choose. To keep things simple, we’ll assume you plan to sell your business internally to one of your key employees.

2. Identify Potential Successors

First, consider who you’d like to take the reins. Is there someone in your organization who is qualified to fill your shoes and might be interested in doing so?

Interest is a key part of the equation. You might have an ideal candidate in mind, but if they have no interest in stepping into your role, any conversations you attempt to have on the subject might go nowhere.

3. Interview Potential Successors and Make Your Final Selection

Once you have someone in mind to succeed you, schedule a chat with them. Explain to them that you’d like to gauge their interest in taking over for you once you’re ready to make your exit.

The ideal candidate is suitably skilled and experienced, as well as enthusiastic about the prospect of carrying on the business. They should also be committed to upholding the firm’s mission and values.

Once you’ve chosen a successor, you’ll need to share the news with the rest of your team.

4. Hammer Out the Financial Details

Assuming you choose a successor and they agree to the purchase of the business, the next step is working out the specifics of the transaction. That includes establishing an accurate valuation and clarifying how the employee will handle the financing.

Establishing a valuation for an advisory firm requires some research. At the end of the day, your firm is worth what someone else is willing to pay for it. Factors that can influence valuations include:

Your niche
The type of clients you serve
Your firm’s assets under management
Your brand value as an advisor
Operating costs
Annual revenues

In terms of how the sale itself is structured, you may accept installment payments, require full payment or offer your successor a different option. Your succession plan should state which one you and your successor agree to, the amount of the sale, when the sale will be complete and whether you will retain any equity in your firm.

5. Begin Preparing Your Successor

Two financial advisors discuss succession planning for their firm.

Before you can step away, you’ll need to ensure that your successor is fully prepared. That means taking time to set expectations about what their new role will entail and the added responsibilities they may have in the meantime.

This is also a time for you to:

Provide any necessary training they may need
Familiarize yourself with the full details of how your firm’s front, middle, and back office operations work
Answer any questions your successor may have about how the transition process will work

It can also be helpful to schedule weekly meetings with your successor until the transition is complete.

6. Establish a Time Frame

Once you know who you want to take over the business, you’ll need to nail down the timing for your exit. Your exit date will determine how quickly you need to move to complete all of the required steps you’ve outlined in your transition plan.

7. Transition Clients

You’ll need to transfer responsibility for managing client accounts to your successor. If you’ve taken steps to prepare them beforehand, this step of the transition should be relatively smooth.

At some point, you’ll need to tell your clients what’s happening behind the scenes and introduce them to your successor, if they haven’t already met. Be prepared for questions at this time; your clients may want more explanation for your departure, as well as reassurance that your successor is equipped to handle their needs.

8. Prep for Repapering

You’ll need to update client documentation and obtain new signatures on client agreements once you’ve fully stepped away from managing their accounts. Repapering is an important compliance step, and given how time-consuming it can be, it’s important to get the ball rolling early.

You may consider bringing a repapering specialist on board to help with this part of the transition, especially if you have an extensive book of business.

9. Get Ready for the Next Phase

So far we’ve focused on succession planning as it pertains to your firm, but you also need to think about what comes next for you.

For instance, do you plan to pursue a new career? Go back to school? Take on consulting work? Fully retire so you can enjoy time with family and explore new hobbies?

Aside from that, what’s the plan financially? Have you reviewed your portfolio to see if you’re on track for your retirement target? How will you use the proceeds from the sale of the business to solidify your financial plan? Do you know what you’ll do for health insurance once you transition? Do you have enough life insurance or disability insurance?

Succession planning is all about details, and preparation is key to navigating the process successfully. So as you draft your plan, take time to consider where you, and your future, fit in.

Bottom Line

An advisor reviews succession planning for financial advisors.

A succession plan is critical if you want to ensure that your firm will continue even when you’re no longer part of it. If you’re having trouble getting your plan together, consider talking to a business consultant who can help you create a workable strategy.

Tips for Growing Your Advisory Business

Having a visible brand can give your firm a significant boost when it comes to marketing. A solid brand can help to instill trust in potential clients and persuade them to seek you out for financial advice. If you’re looking for ways to expand your brand presence online, you might consider partnering with an advisor marketing platform. SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service that financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
In addition to a succession plan, financial advisors can benefit from having a continuity plan. This document helps to answer what-if questions that can arise when there’s a situation that makes it difficult to tackle business as usual. For example, if you were to be seriously injured, who would run the firm on your behalf until you’ve recovered? Or what if a natural disaster damages your business premises? A continuity plan can help you prepare for those types of scenarios.

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