Today's Advisory Career

When Retirement Planners Retire: The Vested Advisor

Succession planning in the age of ‘valued relationships’

By Brian Heapps, CLU, ChFC

Mr. Heapps is President of John Hancock Financial Network. He has 26 years of experience as a financial representative, firm owner, and home office executive, and led the development of the Signator Investors, Inc. proprietary Build4Success Equity and Succession platform. Connect with him by e-mail:

In Review: This article ran in the October 2013 L&HA/digital edition and has been opened and shared more than 10,000 times. In light of its popularity among our readers, we are re-posting it today.


Succession planning is a difficult topic to broach with financial professionals. It always seems like it’s somewhere down the line, a long way off. We spend so much time helping our clients plan for their financial futures, we often don’t take the time to focus on our own until it’s too late and the options are limited.

As recently as 10 to 15 years ago, the predominant view in the industry was that value was vested in the individual financial professional, and not in the practice. As a result, owning a practice was viewed more as a job than as a business. However, that environment has rapidly changed due to a focus on recurring revenue sources and a more competitive acquisition landscape. While more financial professionals view their practice as an entity that will survive them and continue to serve the firm’s clients, the value that financial professionals can build has gone unrecognized for too long.

Financial professionals operate within a unique business model. Unlike a manufacturing company or a wholesale supplier, your business value lies not in your practice’s fixed assets, inventory, or intellectual property; but, rather in your client relationships. This creates challenges in devising succession strategies that maximize value to you, while balancing how those relationships will be transitioned to your appointed successor. At Signator Investors, Inc., powered by John Hancock Financial Network, we place extra emphasis on putting the issue of succession planning front and center.

To learn more about how we can best help our advisors prepare for succession, earlier this year we commissioned a survey by Mathew Greenwald and Associates to learn more about how the industry views succession planning. The goals of the study were to gauge financial advisors’ views toward succession planning, including the steps they may have taken to prepare for succession, their knowledge of specific aspects of succession plans and the importance they ascribe to those aspects.

The survey represents responses from more than 500 financial professionals who were working either as an affiliated producer or as an independent; planned to retire within 20 years; and had worked in the financial services industry for at least five years, owned at least half of their practice and generated at least $80,000 in gross income in the 12 months prior to the study. A total of 500 respondents completed the questionnaire, including 191 affiliated career agents, 250 independent broker dealer representatives, and 59 independent financial planners or advisors.

Transition Planning Begins Today

Following are some of the key findings from this study, along with some tips and advice for how to address the concerns raised by the advisors surveyed.

Eleven percent of advisors studied have completed a succession plan. About a third have started but not completed a plan (34%), while 44 percent said they’ve thought about making a plan but not started one; an additional 12 percent haven’t even started thinking about creating a succession plan.
While many advisors (81%) say that the industry does not do a good job of helping plan for succession, most admit that they, too, are a roadblock in planning for their succession: 55% agree that they are too busy with their practice to think about succession planning, and 53% agree that they have procrastinated too much when it comes to this issue.

Don’t get caught in the trap of waiting until it’s too late to begin succession planning. When you’re trying to provide excellent service to your current clients while simultaneously trying to grow your business, planning for the future seems like a much lower priority.

Equity and succession should be viewed as a career-long process rather than a one-time event. The earlier you begin to consider and implement components of equity and succession, the more likely you will protect and retain your clients, maximize the value of your business, and ensure a smooth transition of your practice to a willing successor

Equity and succession should be viewed as a career-long process rather than a one-time event. The earlier you begin to consider and implement components of equity and succession, the more likely you will protect and retain your clients, maximize the value of your business, and ensure a smooth transition of your practice to a willing successor. Having a well-defined plan can also yield present-term advantages. Both current and prospective clients, especially those clients younger than you, will be reassured to know that there is a plan in place for their money that reaches beyond your own career.

Funding Transition

Advisors cite a number of serious concerns in both the financial and client service aspects of succession planning, including obtaining cash for their business (80%), maintaining relationships with key clients (70%), financing a transition (69%), annuitizing their business (69%), and bringing along a younger rep (66%). 56% list leaving clients with a lower level of service as a concern, and another 47% agree that they do not believe they will be able to find someone who will service their clients as well as they do.
In the past, many exit strategies focused on liquidation of the business and its assets.

As recently as the mid-1990s, financial professionals provided clients with a list of two or three financial professionals and said “good-bye” when it was time to retire. In certain cases, owners simply decreased the number of hours they worked and the level of services they provided, opting for an attrition-based exit strategy. Today, with a strong market and the proven value and transferability of even the smallest financial services business model, that paradigm has changed. The question has become where to look for the best possible successor based on the size and type of your practice.

Your succession plan may focus on an internal route, choosing a current partner, employee, family member, or protégé as your successor, or it may involve a merger or sale to a third party. History has shown that most third-party transactions take place between buyers and sellers who know each other prior to engaging in the transition. They are peers or relatives, oftentimes within the same geographical area or within the same organization.

By linking a current practice owner to the energy and talents of the next generation, the future opportunities are tremendous. The key is to begin this process early. By doing so, you can build a bridge that both maximizes the value of your practice and ensures that your clients are taken care of by a professional who shares your values.

The Challenge of Valuation

Many advisors realize the importance of an accurate valuation of their business, but do not feel knowledgeable about how to obtain one.

  • Valuation of an investment business – 83% feel it’s important, 42% not knowledgeable how to obtain one
  • Obtaining a valuation of a fee-based business – 72% important, 49% not knowledgeable
  • Obtaining valuation of an insurance business – 66% important, 56% not knowledgeable

Practice valuation is another instance where a broker-dealer’s equity and succession platform can really be helpful to an advisor. A strong equity and succession program will offer access to a third party, such as FP Transitions, to develop a valuation model that takes into account investment and advisory products under the traditional valuation approach, as well as a component based on the insurance product sales of a financial representative’s practice.

Once you complete an accurate third-party valuation and have a firm grasp on what your practice is worth, you’ll have a better understanding where you are in relation to the steps in forming an effective equity and succession plan. This will allow an advisor to take the necessary steps to protect the value of the practice that has been built. This way, even if an exit strategy is still years down the road, clients will feel comfortable knowing a succession plan is in place.

A successful transition of your business from one generation to the next can stand as the hallmark of a successful career. For a profession that prides itself on helping its clients prepare for the future, it’s time that we start preparing for our own. It all starts with taking the time to plan – before it’s too late.