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Succession Planning Tips for Financial Advisors


As a financial advisor, you may dedicate a lot of your time to helping clients create a workable retirement plan. However, it’s also important to consider what your personal exit strategy might look like once you’re ready to retire. Succession planning for financial advisors isn’t that different from succession planning for other businesses. Though there are a few unique challenges to consider. We’ll go over what they entail.

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Succession Planning Tips for Financial Advisors

If you’re ready to create a succession plan for your advisory business, it helps to know where to start. These tips can help you create a plan for exiting your business with minimal disruption.

Tip 1: Identify Your End Goal

Succession planning is all about starting with an outcome and working backward to create a plan that’s designed to help you reach it. The sooner you begin thinking about your end goals, the more time you have to plan and adjust along the way, if necessary.

Your overarching goal may be to pass the business on. But there are different versions of what that might look like. Handing the business over to your children might seem like an obvious choice. But if they’re not interested in running the firm, you might have to cast the net wider for a successor.

For instance, you may consider selling the business to a trusted employee or selling it to another advisor.

It’s also important to consider your personal timeline for stepping away from the business. Rather than giving up all of your duties at once, it might make sense to pull back gradually while training your successor to fill your role.

Tip 2: Estimate What the Business Is Worth

If your goal is to sell the business, it’s helpful to have an accurate valuation so you know how to price it. You can make a simple estimation of its market value by subtracting all of the business’s liabilities from its assets.

That number can give you a starting point to work with when deciding on an acceptable price for the business. Asking an accountant to review your business’s finances can give you a more accurate valuation. You may take the additional step of getting a professional business appraisal.

When looking at the numbers, it’s important to separate your emotions from the process. While the business may seem priceless to you, an interested buyer is going to focus on the numbers and what kind of return on investment they’re likely to get.

Tip 3: Solidify Your Personal Financial Plan

Selling your advisory business may allow you to walk away with a decent amount of money in hand. However, it’s important to do some planning independently of anything you stand to gain. This is so that you’re not underprepared if you end up selling for less than what you expected.

Some of the most important considerations at this stage include:

  • Continuing contributions to your retirement plans
  • Obtaining disability insurance or long-term care insurance
  • Purchasing a life insurance policy to provide for your loved ones after you’re gone
  • Deciding what kind of retirement lifestyle you plan to live
  • Drafting an estimated retirement budget

Health insurance is also something to weigh, as Medicare doesn’t kick in until age 65. If you plan to retire or semi-retire before then, you’ll have to decide how you want to pay for healthcare in the gap.

Tip 4: Communicate Your Plans

A succession plan is most effective when everyone in the business knows what to expect. If you’ve created a succession plan, then it’s important to ensure that those who will be impacted by it are aware of how the transition will be handled.

That includes both employees and clients. Long-time employees may want reassurance that their role in the business will not be diminished or eliminated. Clients, meanwhile, want to hear that they’re going to continue to be in good hands after you leave the business.

Tip 5: Get Help

Succession planning isn’t necessarily you do one time and forget about. It can be an ongoing process. And you may need help to ensure that you’re checking off all the required boxes.

Talking to a succession consultant can help you identify any weak spots or holes in your current plan that may need to be addressed. They can review your plan and look for any obstacles or challenges that you might have missed.

You can consult with your accountant or tax attorney to discuss any tax implications of selling the business. If you need key person insurance for the business or other types of insurance for yourself, your insurance agent can help with that.

Why Do Financial Advisors Need a Succession Plan?

SmartAsset: Succession planning tips for financial advisors

Succession planning is an opportunity to decide what will happen to the business you’ve built if you retire, pass away or simply decide that you’re ready to move on.

Roughly two-thirds of financial advisors have a succession plan in place, according to a 2022 SmartAsset poll. If you’re part of the other third, you could be exposing your business to unnecessary risk.

It’s helpful to have a succession plan if you:

  • Plan to retire and want to ensure that the business will continue
  • Want to pass the business on to your heirs
  • Are planning to sell and want to make the transition as smooth as possible for your clients and staff
  • Would like to plan ahead for unforeseen situations, such as an extended illness or disability that prevents you from running the business in a hands-on way

A financial advisor succession plan is essentially a safety net of sorts since it can allow you to plan for any and all contingencies that might affect business operations.

What Should a Financial Advisor Succession Plan Include?

Succession plans are designed to answer specific questions related to different outcomes. What you include in your personal succession plan can depend on what your end goal is for the business and what will happen to it once you’re no longer at the helm.

For example, say that you would like to leave the business to your two oldest children who are also employed by your firm. Your succession plan would likely need to answer the following questions:

  • What type of control will each child have?
  • How will ownership be shared between them?
  • Which duties will each one have?
  • What should happen if one child decides they no longer wish to be a part of the business?

In a broader sense, succession plans can also be used to identify individuals who are critical to business operations. If you’re hands-on with all aspects of running the business, you might be the main key person. But you may have additional support staff who also play important roles.

Your succession plan might need to include guidance on which employees or key persons should be retained once you’ve left the business. If those individuals wish to move on because the business is being sold, you may also need to specify a process for recruiting and training the necessary staff to replace them.

Bottom Line

SmartAsset: Succession planning tips for financial advisors

Creating a succession plan can eliminate any questions about what will happen to your business once you’re ready to retire or move on to another venture. The sooner you turn your attention to succession planning, the more time you have to create a plan that yields the most benefit for the business and everyone connected to it.

Tips for Growing Your Financial Advisory Business

  • SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service 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.
  • Expand your radius. SmartAsset’s recent survey shows that many advisors expect to continue meeting with clients remotely following COVID-19. Consider broadening your search. And work with investors who are more comfortable with holding virtual meetings or spacing out in-person meetings.

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