3 succession planning scenarios advisers must consider

Jan 2, 2014 @ 8:47 am

By David Canter

Like financial planning, succession planning is a multistep process that requires extensive contemplation of all aspects of an adviser's life. Whether you're considering retirement, leaving the profession or building your business through a merger or acquisition, the decisions you make during your self-evaluation will serve as a barometer as you establish a plan.

Advisers regularly guide clients through the exercise of scenario planning. The principles and application are the same when you focus on your own succession planning. Because every practice is different, certain aspects of scenario planning will differ, but the core paths remain the same — internal transition, merge and stay involved, or sell and move on. You likely have an idea of which path you think is best, however before diving in head-first, I recommend asking yourself some questions related to each scenario to help determine which is right for you.

If you're thinking about an internal transition, consider asking the following questions:

1. Do you have junior members in your firm who are enthusiastic about the business and committed to its future?

2. Are you confident that you have a staff members who could become your successor?

3. Does your firm have a mechanism in place for employees to share in firm profitability? Does it motivate them to participate in building the business?

4. Are you confident that you know the value of your firm? (You're simply considering the question right now, not executing.)

5. Do your clients have a strong level of trust and comfort with your staff?

6. Are you a good coach/mentor? Do you enjoy developing staff? Do you have the energy and/or interest to develop staff?

Our team recently spoke with an adviser in his mid-60s who successfully completed an internal transition. He was fortunate to determine early in the process that keeping his firm's culture intact was important to him during the transition. As he searched for an internal transition partner, he sought younger advisers who were both “teachable” and entrepreneurial. Remaining focused on “training” the right successor, he went through a couple of unsuccessful hires before finding the right person — someone who was eager to grow and dedicate himself to the business. The business owner now has transferred 40 percent of the business to the candidate as part of a gradual 10-year transition plan. Driven by his knowledge of what was valuable and important to him, he has achieved his goal of mentoring his successor and maintaining the culture of the firm.

When analyzing the potential scenario of merging the firm and staying involved, consider the following questions:

1. Are you willing to take on business and legal risks in a merger or sale?

2. Have you considered the profile of an ideal merger partner?

3. Have you already identified a like-minded adviser/firm to complement your current business? If not, how do you plan to do this?

4. Are you physically capable of staying involved in the business for the foreseeable future?

5. Do you feel the newly combined firm will provide an equal or better level of service to your clients?

6. Do you have the professional resources to help you with negotiations and contract management during the merger/sale process?

Another adviser had a business which contained two revenue streams – an informational newsletter for more mass-affluent clients and an advisory practice with high-net-worth families. With the newsletter business no longer growing, she decided to focus exclusively on the high-net-worth business. She found a like-minded firm that had a stronger focus on clients in the mass-affluent space, and merged. The benefit of mergers such as this is that you can honestly tell clients that this is a good move for the firm and that it will result in an enhanced advisory experience. The adviser now is comfortably positioned as an executive at the merged firm and is providing broader expertise for a wider range of clients. She is able to spend her time focusing on serving high-net-worth families, which is her passion. The lesson here is that as you refine your focus and narrow down whom you want to serve most effectively, it often pays to merge with a firm that is better positioned to help you concentrate on your priorities and passions.

As you reflect on the scenario of selling and moving on, consider these questions:

1. Are you confident in your knowledge of the current value of your firm in today's market?

2. What is your firm's culture? Do you intend to try to preserve the existing culture post-transition?

3. Do you think your current clients would stay on board post-sale to the new firm?

4. Do you have employees in key positions that will make the business more attractive to a buyer?

5. Can you clearly articulate the model, structure and value proposition necessary in an acquirer?

6. Have you identified a buyer that you believe will be a good fit? If not, how will you engage in this process?

7. Do you understand the tax implications of this type of transaction?

Staying flexible is key. One adviser sold his business to a large firm, which doesn't sound particularly unique until you learn that, at first, he hadn't intended to sell. Having built a successful practice, the adviser was seeking scale and opportunities for further growth. While looking for an outsourced investment management solution, he caught the attention of a company that also had a wealth management practice, in addition to serving as a turnkey asset manager. They were impressed by the adviser and his practice and expressed an interest in acquiring his firm. Though this adviser had declined previous opportunities to sell his firm, he accepted this offer because he felt it provided a way to have a greater influence on his clients and the other advisers in his firm. He agreed to stay on board for a couple of years, which enabled him to ensure a smooth transition.

Hopefully these questions will stimulate your thinking as you consider the essentials of each path. Other considerations will arise as you address these areas. By completing the exercise of analyzing all three options, you'll be in a better position to identify risks and areas of strength related to each scenario. As you move forward in your transition, you will be better prepared to address gaps so that you can implement a smooth transition.

David Canter is Executive Vice President, Practice Management and Consulting, Fidelity Institutional Wealth Services. Fidelity Institutional Wealth Services is a division of Fidelity Brokerage Services LLC. Member NYSE, SIPC. The content provided herein is general in nature and is for informational purposes only..


What do you think?

View comments

Recommended for you

Sponsored financial news

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Upcoming Event

May 02


Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


Top questions surrounding future of DOL fiduciary rule

Reporter Greg Iacurci and managing editor Christina Nelson discuss the biggest uncertainties springing from the Fifth Circuit Court of Appeals' decision to vacate the regulation.

Latest news & opinion

DOL fiduciary rule likely to live on despite appeals court loss

Future developments will hinge on whether the Labor Department continues the fight to remake the regulation its own way.

DOL fiduciary rule: Industry reacts to Fifth Circuit ruling

Groups on both sides of the fiduciary debate had plenty to say.

Fifth Circuit Court of Appeals vacates DOL fiduciary rule

In split decision, judges say agency exceeded authority.

UBS, after dumping the broker protocol, continues to see brokers come and go

The wirehouse has seen 14 individuals or teams leave and five join for a net loss of $2.4 billion in AUM

Merrill vets ready to recharge breakaway recruiting efforts

After regrouping in wake of broker-protocol exits, Snowden Lane Partners is ready to recruit wirehouse brokers and RIAs.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print