Succession planning doesn't mean selling

Aging advisers need to ask themselves if selling their practice can fund their own retirements

Jul 30, 2014 @ 1:27 pm

By Minda Smiley

Financial advisers who are banking on the sale of their business to fund their retirement could be in for a rude awakening.

More than 40% of advisers predict the sale of their businesses will account for 26% to 50% of their retirement assets, and 14% expect it to fund between 51% and 100% of retirement.

But when it comes time to start the actual succession process, advisers often realize that their businesses aren't worth as much as they had hoped for, according to a CLS Investments survey of 117 independent financial advisers.

“The valuations that advisers are receiving for their businesses aren't as high as maybe they had expected,” said CLS chief executive Todd Clarke. “They aren't getting as much as they had planned, and that discourages them from making a succession plan.”

The survey shows that fewer than 20% of advisers indicated that they have a formal succession plan in place.

“The industry has equated succession planning to selling,” Mr. Clarke said. “Succession planning is absolutely critical but it doesn't have to be selling your practice.”

Many advisers do not have a completed succession plan in place because they do not want to retire. More than half of the advisers surveyed do not plan on retiring until they are age 71 or older, if at all, according to the research.

“A lot of advisers re-invent their practice,” said Mr. Clarke, adding that as advisers get older, they can choose to work with a select group of clients or can join forces with junior advisers.

But advisers have a fiduciary responsibility to their clients to have a plan in place no matter what.

“Advisers should ask themselves, 'What happens to my clients if something happens to me?'” Mr. Clarke said. “It's a great starting point that can lead you down a number of paths that can help you start your succession plan.”

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