Top 4 exit strategies for financial advisers seeking succession

I recently participated in a webcast produced by InvestmentNews that focused on helping financial advisers answer the question: What is your practice worth? (Webcast available on-demand).
In an industry where the average age of a financial adviser is 56, the topic of exit strategies is a daily conversation at The Advisor Center. It’s a difficult professional stage to navigate as advisers struggle to balance their financial investments (the value of their practice) with the responsibility of protecting their clients, with whom they have built lasting relationships.
In today’s landscape, independent financial advisers are considering four different options.
Grooming a junior adviser
Typically, these senior advisers are not ready to retire. However, they want to start planning for how the business will sustain beyond their tenure by recruiting an adviser to take over eventually.
Bringing on a junior adviser is best suited to those with time to orchestrate and implement a long-range plan including a commitment to guiding the adviser, as well as provide structure, training, time and financial support.
These business owners are typically looking for one of two types of junior adviser. The first is a professional with three to five years in the advisory business, an understanding of the industry basics and the ability to hit the ground running. The second is a career changer or college graduate who can be trained in the industry and in the company’s culture from the ground up.
Working in retirement
A number of advisers are expressing a desire to continue to work with existing clients rather than retiring. These advisers often love what they do, don’t want to give up their practice nor their client relationships. Robust technology gives advisers the ability to work remotely. This flexibility allows the advisor to winter in warmer weather, life part-time in more peaceful locations or take extended trips — all while continuing to serve their clients and generate an income.
Although this group doesn’t intend to sell anytime soon, they still need to determine the value of their practices in order to create an emergency plan.
Retiring outright
These advisers are typically sole proprietors who are interested in selling their book of business in order to retire. Clearly a valuation of the business is important at this point. However, this is also an emotional decision for many advisers as they are trying to find a buyer who meets their price and who can also be trusted to serve their clients.
Although this seems like the easiest exit strategy, it’s currently the least popular — much to the disappointment to the large number of advisers out there looking to buy a practice.
For those choosing this route, many are opting for internal transactions within the broker-dealer itself and within the RIA custodian, as these firms are eager to retain the assets. In the mind of the retiring adviser, the transfer of the relationship seems to be easier than selling to an outside financial adviser.
Merging your practice
Rather than selling practices outright — internally or externally — we are seeing more advisers choosing to merge with and sell their assets to an ensemble practice sharing their affiliations.
This option is particularly appealing to advisers who want to participate actively in building the bridges between their clients and the advisers eventually taking over their investments. Joining an ensemble can serve as a long-term succession plan or facilitate a more immediate selling of the assets.
For most independent advisers, succession planning is a very personal decision. We encourage advisers to consider what they want to do next, taking into consideration their timelines, their lifestyles and what’s best for their clients.
Tom Daley is, founder and CEO of The Advisor Center.