You’ve built a business providing financial insight to a growing community of clients. You’ve fostered this relationship over the years and established a trusted role in their lives. As your clients have moved along their journey as professionals, entrepreneurs, investors, or heirs, they’ve turned to you for advice at each step; and now they are counting on your business to be there and to see the process through to the end. This means that as your clients transition into their own retirement, they will depend on your services more, not less. Regardless of the plan you choose, it is your duty as an independent financial professional to have a plan for client service and support that extends beyond your own career.
One way or another, your path as a financial planner will come to an end. The question is whether or not you’re going to exit on your own terms and in your own way. Are you going to create a plan for your exit that preserves the value and growth of the business you’ve spent your career building? Are you going to make sure your clients’ assets are in good hands for the length of their lifetimes, not just for the length of your career?
There are many exit options and a variety of ways to execute them. Your unique situation and goals determine which one is right for you.
“A succession plan is best defined as a professional, written plan designed to build on top of an existing practice or business and to seamlessly and gradually transition ownership and leadership internally to the next generation of advisors.”1
This option is available to advisors who have recruited and cultivated internal successors–a son or daughter, junior partner, or key employee(s)–and have both the resources and timeline to execute a gradual, incremental transition. Succession planning allows an advisor to create a sustainable business with his or her partners and to establish a true legacy, but it does take time. Internal succession can be accomplished on an accelerated timeline if the circumstances and financing allow, but, more commonly, plans tend to take five to ten years or more.
If you’re looking at a long succession timeline, especially if you’re a single owner, you’ve got time to recruit and cultivate a strong team of advisors that could one day become a part of your ownership and leadership structures. Not only does this path plan for your exit years down the road, but it allows you to build a sustainable business that will create–and protect–enhanced value.
Selling your business to a third-party is the most expedient option for many advisors who do not have internal partners or who want to move quickly into the next chapter of their lives. While the timeline for an external sale is relatively short compared to an internal transfer of ownership, it still requires meticulous planning as the founder takes the steps to understand value drivers, improve market position, and explore financing options.
There are several different venues where you can find buyers (professional networks, BD/Custodian pools, bulletin boards), but to maximize your business value, the open market is a powerful choice. The Open Market can connect you with the best possible match for your business and clients while offering you transactional support throughout the process. This nationwide search will identify a pool of qualified buyers while maintaining confidentiality and help you filter the inquiries to find the best buyer. Whether your find your buyer on the open market or of your own accord, the proper transaction support you and your sale all the way through drafting and execution of detailed contracts, deal closing, and client transition.
“Merger” is a term applied to a wide range of business structuring alternatives, but, in many cases, it offers a powerful set of tools to bring two or more practices together to create synergies and options that did not previously exist–all in a tax efficient manner. Whether merging small into large, young into old, or a group into a single, sustainable enterprise, this strategy can be used to reshape the future of your business. A merger can facilitate an exit in the short-term as well as create long-term succession within the new enterprise and ownership structure.
If your inclination is to scale back your management responsibilities, but you’re not ready to stop working with your clients, Sell & Stay might be a good option for you. There are many situations where this would be beneficial. As a single owner, this is a strategy for easing into retirement, balancing health issues that prevent you from working at the same level you once did, or even transitioning into an “encore career.”
Using the Open Market–or other buyer search–to find your best match, the Sell & Stay strategy will lock in the value of your practice while you continue to work for a couple of more years, earning a salary and continuing to do the piece of the job that you enjoy. Different from a succession plan, you sell ownership of your business, collect a significant down payment and a promissory note for the remaining value, and continue as an employee of the acquiring independent firm, with an opportunity to contribute to the growth of your client base.
Attrition is the default option for many advisors, especially those who have built a lucrative lifestyle practice. Unfortunately, far too many advisors realize they are on their way to retirement via attrition when they notice their existing clients are no longer investing and new clients are fewer and farther between.
If it is your intention to “die with your boots on,” choose this strategy purposefully and create the right plan—your clients deserve it and your estate may rely on it. Monitor your value annually to stay on top of key changes in your practice and create a continuity agreement with a reliable partner to ensure your clients’ needs are met. Without a proactive continuity plan and a current business valuation, both your clients and your estate are vulnerable–in other words, someone else will decide what happens.
A continuity plan is an “emergency exit plan.” Having this plan in place preserves the value of your business and protects your clients in the event of your sudden death or disability. The vast majority of financial service practices are largely dependent on the skills and personalities of one primary advisor, leaving the practice, staff, and clients vulnerable should the founder have a catastrophic injury or illness.
This problem isn’t restricted to sole-practitioners, multi-owner businesses operating as individual silos can be equally vulnerable. A heart attack, car accident, or stroke can erase years of built-up equity value and clients’ trust in a literal heartbeat. Regardless of the size of your practice or your career path, determining the value of your practice and creating a plan to protect that value is the single most important step to planning for the future of your advisory career.
FP Transitions supports a wide variety of transition & exit plans. The most important starting point is to understand the various options and to plan carefully for the strategy that is right for you, your clients, and your staff. When you have an idea of what your end game strategy might look like, we can help you take the right steps at the right time to evaluate and, if appropriate, achieve your goal.
1. David Grau Sr., JD, Succession Planning for Financial Advisors: Building an Enduring Business (Hoboken: Wiley & Sons, 2014)