Why do advisors stumble when planning their exit?

Jeff Concepcion knows all too well the challenge independent financial advisors face when planning their exit strategies. In his experience, these advisors often struggle to develop the right plan due to a lack of resources and information.

“Independent connotes the fact they are on their own,” the founder and CEO of Stratos Wealth Partners explains. “When you ask how many advisors have a formal, executed, succession plan in place, usually it’s less than a third. Why? They question what the right structure is, what the right valuation is and whether it’s the right deal.” 

Concepcion's experience underscores a recurring theme: the lack of a clear, structured approach to succession.

“They think of it more as an event than they do as a process,” he says. “Many advisors make the mistake of waiting too long to act, often leading to disastrous outcomes. In many cases, if an advisor passes away, broker-dealers have only 30 days to transfer the book to another licensed advisor, which, without a plan, turns into a fire drill.” 

The succession landscape is further complicated by an industry in transition, with advisors exploring both internal and external strategies to pass on their businesses. However, developing internal talent isn’t always the silver bullet it appears to be.

“A lot of folks try to develop Gen2, and sometimes the expectations are too high,” Concepcion adds.

Still, fostering talent is critical, particularly given the industry’s current struggles with attracting and retaining young advisors.

“Equity and ownership are certainly a wonderful pathway to do that,” Concepcion says. “However, many firms face an internal conflict between maximizing value and honoring those who have contributed to their success. Often, external buyers can offer significantly higher valuations, but internal stakeholders, such as long-serving employees or family members, may not have the resources to compete with larger firms or private equity-backed buyers.”

That may leave advisors trying to balance the challenge of wanting to maximize their retirement value but honoring the team that helped build the firm.

Hybrid solutions often appeal to those in this dilemma, where an institutional partner buys a controlling interest at the market rate while allowing internal stakeholders to acquire smaller equity stakes at subsidized valuations.

“The seller still ends up with a great outcome, bringing in institutional talent and expertise,” Concepcion says.

As the industry evolves, advisors must also grapple with an aging workforce and a shortage of new talent. Concepcion highlighted that many financial firms have reduced their training programs, once a primary gateway for new advisors. There are fewer entrepreneurs running wealth management firms as larger institutions, RIAs and private equity firms control more assets. The growing presence of institutional investors has also changed the financial dynamics of succession planning, particularly when it comes to deal structures. Historically, wealth management practices were exited through earnouts or revenue shares, but the landscape has shifted.

“The old methodology was some multiple of top-line revenue, which really makes no sense,” Concepcion adds, noting that businesses are now evaluated based on their earnings and free cash flow, rather than gross revenue. This change, driven by specialty lenders familiar with the industry, allows for acquisitions to be funded with substantial upfront payments, often 50% to 80% of the total consideration. 

This move toward earnings-based valuations underscores a critical point: the importance of understanding the intricacies of succession planning. Concepcion and his team focus on guiding advisors through the decision-making process, emphasizing the importance of a tailored approach.

“My primary focus with folks who are thinking about succession is solving for their specific goals. We don’t have a templated approach,” he says.

Instead, Stratos Wealth Partners encourages advisors to articulate their goals, allowing for custom, bespoke plans that meet their specific needs. Whether it’s transferring equity to internal stakeholders, monetizing a portion of the business, or retaining a minority partner to help accelerate growth, Concepcion’s approach is flexible. 

This adaptability is especially important in a marketplace where advisors increasingly need creative solutions. With rising costs of capital and competition from large institutional investors, smaller firms face a steep challenge when it comes to both buying and selling.

“It’s very hard for smaller firms or individuals to compete,” Concepcion adds. “But there are firms, like ours, who offer flexible solutions to give them some options.”