The financial services industry is rapidly aging. Nearly 106,000 advisors are planning to retire over the course of the next decade, according to the Cerulli Associates 2024 U.S. Advisor Metrics report. Alarmingly, 26% of them are still unsure of their succession plans.
If you’re a financial advisor and you’re unsure of your succession plan, you’re not alone. We’re here to help.
Why advisors don’t have succession plans — and why they should
Many advisors delay succession planning because it feels like a distant concern. But the reality is that a strong succession plan must be built long before it’s needed. It takes time and careful consideration. The consequences of waiting too long can lead to hasty decisions, unfavorable outcomes, and value loss.
Succession planning is more than a transfer of ownership. It is paramount to building long-term stability for your firm, your clients, you, and your family. Whether the transition is planned, due to retirement, or unexpected, due to life events such as illness or death, a well-structured succession plan safeguards your legacy, ensures seamless business continuity, supports your team and clients, and provides financial security for you and your family.
Start here: clarifying your vision
A successful succession plan begins with reflection. What do you want for your future and your firm’s future? If you’re starting your succession planning journey, here are five steps to take and corresponding questions to answer.
1. Create your vision statement
- What does your firm do?
- Why does it exist?
- Who does it serve?
- What are its goals?
- How will it achieve those goals?
2. Define your succession goals
- What does a successful transition look like for you, both personally and professionally? What are your top priorities in succession?
- Do you want to keep your business in the family, or do you want to transfer it elsewhere?
- What kind of financial arrangement are you seeking? Do you want a lump-sum payday upon exit, or are you looking for an income stream for years to come?
3. Set clear objectives for your succession plan
- Who do you envision taking over your business? What qualities should they have?
- What is your ideal transition timeline?
- What financial arrangements need to be in place?
- Are there key individuals who must be involved in the transition?
4. Address your transition concerns
- Is your successor ready? If not, what steps will you take to adequately prepare your successor?
- Are you ready to move on? How will you maintain your sense of purpose?
- How will your business and client relationships be upheld?
5. Remember your hopes and dreams
- Are there values or traditions you hope to preserve?
- Are there philanthropic causes you hope to support?
- Do you want to remain involved in the business in an advisory or mentorship capacity?
Answering these questions will give you a better idea of what type of succession plan will work best for you.
Choosing the right succession planning path
There is no one-size-fits-all approach to succession planning. If there were one, 100% of advisors would be sure of their succession plans. Your ideal path depends on your goals, financial situation, and long-term vision. After you create your vision statement, identify your goals and objectives, address your concerns, and remember your hopes, there are three main paths to consider.
1. Internal succession
Transferring ownership to a current team member can be a rewarding process. If building a legacy and creating career paths for employees are top priorities, this could be a good option for you and your firm. Although this approach may not result in the largest financial payday, grooming a successor can foster business continuity and help retain client trust. Because your successor shares your vision and values, internal succession extends your legacy and impact beyond retirement.
It is especially important to start internal succession planning early. Identifying and training a successor or successors can be a lengthy and demanding process. For this approach, you might identify a promising team member, set objectives together, mentor them over time, slowly sell your shares, and eventually step back and serve in a reduced advisory or strategic role.
2. External succession
Selling the business to an external buyer can be a fruitful option if you’re looking to sell quickly or are looking for substantial financial security. Because advisors tend to give internal successors a discount, the external buyer route often results in a hefty payday. Plus, outside buyers tend to address efficiency and productivity in the business after taking over. If you choose this path, consider working with a broker to attract potential buyers and help navigate the buy-sell process.
3. Merger or strategic partnership
Joining forces with a firm like Crux Wealth Advisors offers a balanced approach to the transition. Merging or partnering with a firm that shares your vision and values can marry the best of both worlds — quality compensation and the satisfaction of knowing that your business is in good hands. Plus, your business can take advantage of the pre-existing tools and resources of the other firm. This is a popular option with no shortage of opportunity — nearly half (48%) of advisors are interested in acquiring another practice, according to Cerulli’s research.
Consider the example of Crux’s current COO, David Colley. Before joining Crux, Colley was at Waddell & Reed, managing over $200 million in assets. He faced significant operational challenges, outdated technology, restrictive platforms, and the closure of all satellite branch offices, which would have required relocation and a new real estate plan. By joining Crux through a strategic acquisition, Colley was able to access industry-leading technology, a dedicated in-house transition team, and a unique partnership structure that allowed for a full integration of his business while opening doors for growth opportunities and future integration. Today, Colley and his team are fully merged with Crux, and utilizing Crux’s technology, investment models, compliance, marketing, and client service resources, empowering his team to focus on what matters most: their clients.
The value of valuation
There is an opportunity to build value during succession planning, specifically in the valuation process. Valuation can help illuminate any potential gaps. For example, if you have a great repertoire of talent but the profit margin is lower than you’d like, you can focus your efforts on streamlining operations to increase profits. Or perhaps you have an exceptionally high profit margin, but your team and client base are on the older side. In this case, you can focus on recruiting young talent and connecting with your clients’ children or grandchildren. Any gaps are only opportunities to increase value. Working to improve areas of your business not only benefits the business, but also your wallet when selling time comes around. That’s why it’s so important to start early.
Developing your team
Succession planning takes work, but you don’t have to do it alone. Having a team of professionals in place will help you make the most of your transition, no matter which path you choose to walk. Here is a list of professionals you might consider enlisting on your journey.
- A succession planning consultant can help with every aspect of the succession planning process — from setting timelines to strategizing ways to increase value.
- A valuation expert can help you value your business and ultimately determine how to increase that value over time.
- A Certified Public Accountant (CPA) or tax advisor can help arrange your financial statements, put together data for the valuation process, and handle tax implications.
- For smaller firms, a business broker, or for larger firms, a mergers and acquisitions (M&A) consultant can help you market your business and negotiate with buyers.
- A business attorney can create legal documents and identify how to stay in compliance pre- and post-transition.
- A personal attorney can help navigate the transition of assets and ensure your estate plan remains current.
Are you ready for success?
Whether you’re five years away from retirement or just starting your business, developing your succession plan now will afford you more control, options, and peace of mind. Take the first step today. Your future self and your firm will thank you.
Contact Travis for a confidential conversation.
Author
Travis Alexander, CRPC®
CHIEF EXECUTIVE OFFICER
Crux Wealth Advisors (www.JoinCruxWealth.com), is a registered investment advisory practice specializing in fiduciary financial planning and investment management. Led by Travis Alexander, MBA, CRPC®, Founder and CEO, the Crux mission is to help advisors and their clients achieve financial independence on their terms. Having affiliated with Raymond James Financial Services, Inc. in 2016 as a four-person team managing approximately $100 million, the firm is now fully independent as an SEC Registered Investment Advisor. Alexander earned an MBA from Gonzaga University, a bachelor’s degree from the Hugh Downs School of Human Communication from Arizona State University, and the Certified Retirement Counselor designation from the College for Financial Planning. With four locations across the USA at the current time, Crux Wealth Advisors is growing rapidly and welcomes inquiries from advisors and advisor teams seeking a supported independence RIA model. Crux specializes in providing financial advisors with continuity and succession plans.
