From Success To Succession

Advisor Exit Strategies

While helping your clients with their retirement plans, they might be wondering about yours

by Alex Reffett

After working for an industry broker-dealer, Alex Reffett broke away and co-founded East Paces Group to provide more customized money management solutions to his clients. As a visionary, he spearheads the company’s growth strategy, forging strategic partnerships and leading advisor recruiting and acquisition efforts.

It’s said that if you fail to plan, you better plan to fail. As financial professionals that should come as no surprise. But what is a surprise is the fact that so many advisors have not started planning—let alone thought about—their own retirement.

According to the 2020 Cerulli Associates report aptly titled The Impending Succession Cliff, it is estimated that nearly 103,000 advisors (roughly 40% of the industry) will retire over the next decade. Coupled with another alarming statistic from the Financial Planning Association’s The Succession Challenge 2018, which notes that 73% of advisors lack a formal succession plan, the full scope of potential issues that can arise over the next 10 years becomes apparent.

So, while you’re helping clients with their retirement plans, they might be wondering about yours—and what it might mean for theirs. It’s never too soon to think about a succession plan, so ideally all advisors should already have one in place. But if you don’t, there are a few key considerations to keep in mind so you can make sure your practice, and more importantly, your clients, are well looked after.

Choosing Your Successor

Ideally, you want to look for someone who is substantially younger than you simply for the purpose of maintaining longevity of the business. Striking the preferred balance between youth and experience can be challenging, but there are strategies that can be used to find the best potential candidates.

Start with a relationship-based search of candidates to confirm they will be a good fit for you and clients, and then figure out a way to make the numbers work.

The size and structure of an advisory practice can be a determining factor in whether or not to look for succession internally. If you’ve chosen to go this route, the benefit is that you are cultivating talent you are already familiar with, so when you step away, they are prepared to step in and pick up where you left off without interruption for clients.

Advisors who go searching in the open market are usually seeking the highest-value transaction possible, but this can have its drawbacks, since you’ll have much less say about the fate of your clients. So, if you are looking externally, closely evaluate résumés to see where they’ve been, how they’ve performed there, and what ethical and practical standards might exist for them as a result of working at those organizations. How compatible would they be in terms of managing your book of business? How often would they be in contact with clients? Do they have any specialized skills your clients have been asking for?

Rather than bringing in someone completely new to the industry, start to work with advisors who already have solid track records and begin to integrate them into your practice. One of the best ways to do this is to join an independent RIA network that connects you with other financial professionals and, in turn, gives you access to a wider range of potential candidates. Working collaboratively with these advisors and gradually introducing them to clients will not only give you better insight into how they operate, but will likely make clients more comfortable with the eventual transition.

Striking the preferred balance between youth and experience can be challenging, but there are strategies that can be used to find the best potential candidates...

With so much variation between individuals, my recommendation is to look for an advisor team to take over. Teams are much more flexible than an individual, and often will have varying skills and expertise between them, providing a more well-rounded level of leadership. There is also less risk to your practice when you work with a team instead of an individual advisor. What if, God forbid, something happens to the individual successor you’ve decided on—whether through tragedy or because they simply choose another path? Clients will feel much greater peace of mind knowing there is a full team there to help them once you have left.

Putting the Plan into Action

It’s not uncommon for advisors to get so caught up in the day-to-day of growing their business that they neglect to plan for their own financial futures. Many advisors have expertise in succession planning, but there are many others who do not. More often than not outside guidance is needed, so partnering with someone who has this kind of specialized expertise can be incredibly valuable when evaluating different sale options. Having a neutral intermediary to review the transaction details can prevent potential complications during the transition, and can help ensure that any back-end legal considerations and tax-related allocations are in place.

Since many advisory practice owners are unfamiliar with the full scope of what makes the business valuable, an annual valuation is a smart strategy, so look for experts who can help you to better determine the valuation of the business. Not only does it establish a baseline value year-over-year, an annual valuation also helps to highlight any factors that may be driving or hindering growth, giving you the insight you need to adjust strategies accordingly.

Once the successor, purchase agreement, and tax allocation strategy have been settled, it’s time to decide how long you plan to act as a consultant with the practice. Typically, advisors will remain on board for at least another 12-18 months post-sale to get the new team up to speed and transition client relationships, although sometimes it can be a multi-year process. Again, the more time you dedicate to a successful transition, the more likely it is to be a smooth one when the time comes.

When dealing with something as complex and detailed as a succession plan, it is easy to overlook certain aspects. But the biggest mistake you can make is to not have a plan at all, or worse yet, start to shop for a buyer without one. Establishing a solid succession plan is vital to ensuring the continuity of the business and its ongoing success in helping clients and their families achieve their financial and life goals. Determine what you want in the long term for your clients first, and then yourself, before looking into potential options.




Securities offered through Arkadios Capital Member FINRA/SIPC. Advisory Services offered through EPG Wealth Management LLC. Certain individuals associated with or employed by EPG Wealth Management LLC are also be registered representatives of Arkadios Capital. East Paces Group and Arkadios Capital are not affiliated through common ownership.


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