Which Exit Path is Right for You? 5 Advisor Exit Strategies

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, they’ve turned to you for advice at each step: and are counting on you to guide them towards retirement. For advisory professionals nearing their own retirement, it raises the question of how to create continuity when the time comes to pass the torch.

The best succession plan starts well before the need arises. The more proactive a firm owner can be, the more prepared the firm will be to continue providing for clients post-transition. Exit plans come in various shapes and sizes, and what’s right for one firm may not be right for another.

Internal Succession

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 can take up to a decade to fully execute a plan.

Like most other exit strategies, an internal succession will begin with a valuation of the current business, unless one has been done in the last 12 months.

External Sale

Advisors who do not have internal partners or who want to move quickly into the next chapter of their lives will often turn to an external transaction as the most expedient way of exiting the business. It’s worth noting that this avenue still requires meticulous planning to understand value drivers, improve market position, and explore financing options.

Clients working with FP Transitions have access to a nationwide search of vetted buyers and a dedicated consultant that can help home in on the right party.

Merger

Mergers bring two or more practices together to create synergies and options that did not previously exist, usually in a tax-efficient manner. Whether merging small into large, young into old, or a group into a single, sustainable enterprise, this can be an effective strategy to reshape and grow two distinct businesses. A merger can facilitate an exit in the short-term as well as create long-term succession within the new enterprise and ownership structure.

Sell & Stay

For advisors who want to scale back management responsibilities, but aren’t ready to stop working with their clients, Sell & Stay might be a viable option. As a single owner, this is a strategy for easing into retirement, balancing life issues that often present obstacles in maintaining the tenor of a regular practice.

The Sell & Stay strategy locks in a firm’s value while operations continue for a couple more years, gradually scaling transition to the new ownership group. Different from a succession plan, an advisor sells a portion or whole of the business, collects 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 ongoing client growth.

Continuity Planning

A continuity plan is a kind of “emergency” exit plan. Having one in place preserves the value of the business while giving clients peace of mind that their investments are safe even through unforeseen events with the firm.

This problem isn’t restricted to sole practitioners, multi-owner businesses operating as individual silos can be equally vulnerable. Unforeseen health and/or life events can erase years of built-up equity value and clients’ trust.

Having a trusted consultant to work through the legalities and nuances of these plans is critical to ensuring successful continuity and legacy longevity.