A variety of succession options

No one gets out of here alive. The fact is, whether you have any interest in planning your business succession or not, your business will lose you. You will either be struck with an illness or disease that will take you out or you will die.

Many advisors I speak with state they never want to retire. Their work still brings them a great deal of satisfaction and, quite frankly, many older advisors simply aren’t working that many hours. But the reality is, one day every advisor will exit their business. Either on their own terms or on someone else’s.

If you are approaching age 60, you owe it to yourself, your staff, your clients and your family to do some planning ahead of time.

Fortunately, there are many options available today than there were 10 or 20 years ago. Today you have the choice to sell internally to a partner or employee, sell to an integrator consolidator, sell to an aggregator, sell a portion of your business, or enter into an agreement for a future sale. Let’s look briefly at each one:

Sell internally: Many founders first choice is to sell their business to a younger employee. This path provides great continuity for clients and staff, but there are two main barriers when selling internally. First, it’s very difficult to get the true value of your business when selling to someone within your firm because they simply don’t have the money to pay you what your business is worth. Often founders will wind up carrying a note on the business for many years, which essentially still ties the owner to the success (or failure) of their firm.

Second, a great employee of a firm doesn’t necessarily make for a great owner/operator. It’s a different skillset to be able to wear all the hats required to run a business. If they were entrepreneurial, odds are they wouldn’t be working for you.

Sell to an integrator consolidator: You’ve got plenty of options if you go this route as there are a couple dozen firms in the RIA space that have grown through M&A. This route can work great for those advisors who want to continue working on client matters but are burned out on running a business. Oftentimes there are leadership opportunities within these firms, and some advisors have found a new and challenging career path post-sale.

Sell to an aggregator: These options are becoming less common as most consolidators have come to realize that they need to integrate the firms they buy in order to realize synergies. However, there are still some organizations where you could sell your firm while still maintaining full control. This route doesn’t solve perfectly the succession piece but can still be a good path.

Sell a portion of your business: This is becoming more common with firms entering the RIA industry that desire to invest in RIAs. You’ll need to be growing to get a decent price and, while this could help with diversifying your own portfolio while taking some chips off the table at current values, it doesn’t do a ton with the succession issue.

Agreement for future sale: Here you enter into an agreement with someone you know and trust and define the terms with which the business will be sold at a date in the future. You can make the agreement as simple or as complex as you’d like. In a perfect situation, you would determine financing ahead of time and you’d introduce the succession partner to your clients and staff.

Whichever path you decide to go down, I believe it’s important to do the work now while you are in control. Otherwise, there could come a day where someone else makes these decisions for you.

Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA.