What are you doing now to prepare for the day you retire?

Consider all the assets that you currently have under administration. Most advisors would prefer to see these assets – and the valued clients they represent – well taken care of when the time comes for personal retirement. Yet statistics have shown that far too many advisors have not initiated or even educated themselves on how to plan for this eventuality.

Consider the following numbers generated in a 2013 study conducted by Mathew Greenwald and Associates for Signator Investors Inc. that surveyed advisors planning to retire within 20 years:

  • One in five advisors had a definite idea of what will become of their practice when they retire. But only half that number had an actual plan in place.
  • More than half of the advisors surveyed had a poor idea of the value of their practice.
  • 80% regarded the acquisition of cash for their practice as a major concern, followed closely by concern regarding how their clients will be taken care of.
  • 85% of respondents felt that finding a successor was important, but half of that number didn’t feel knowledgeable about the process.
  • Two out of three advisors felt that assistance in transitioning would be beneficial.

Here’s a bit of good news: advisors still have time to put a succession strategy in place. But time marches on for every one, and that window of opportunity is fast shrinking.

Challenges and Solutions

Across the industry at large, it has been during the past decade, with the accumulated AUM of independent advisory practices representing significant, transferable value, that the issue of succession planning has taken on increased importance. Succession within the firm presents its own particular challenges.


Without resorting to giving one’s practice away, it becomes imperative to allow sufficient time for the transfer of ownership, or to grow the business to fund acquisition. Issues such as managing turnover and bringing junior partners along are instrumental in cementing the foundation of the plan.

Realistic Assumptions

Realizing an achievable, realistic growth rate within a reasonable period of time underscores the necessity for starting the process early. Realizing a realistic, achievable valuation of the company is also critical, but it comes with a caveat: it is far wiser and healthier for the company in the long term to keep this area from becoming the focus of the plan. Let the growth of the business shore up the incentive for both the buyer and seller and help establish the terms of the deal.

Those terms and the attitudes of both the seller and buyers within the firm need to take into account that an internal transfer is not an acquisition. It’s a plan. Often this means that the current owner will probably receive less than market value upon the sale because of his or her willingness to share the growth of the firm that ultimately finances the transition. They have opted not to simply close shop or sell to another advisor. Junior/buying advisors within the firm need to realize that for the sake of continuity, client care, and their future security, the owner is intending to make certain financial sacrifices as a result, just as they are making sacrifices in growing the company for the promise of future return.

Focusing on realistic assumptions will allow the shape and terms of succession to proceed with more productive negotiations and far fewer obstacles than if valuation is deemed more important than it truly is. And it is incumbent upon the current owner to educate and explain the benefits and setbacks of many succession models that focus on valuation over plan. Structure a plan that is unique to your company and fair to the personalities within it. There are many outside forces willing to tell you how you should value our business. Before engaging with them, secure internal agreement to your plan and to a valuation method.

Managing Incentives

Formulating the structure of the plan should take into account the financial incentives that junior partners will need to ensure the growth necessary for financing the transition without rewarding so heavily that momentum and motivation are compromised. Similarly, a reduction in compensation to the seller without a commensurate and agreed-upon reduction in workload can be equally damaging to maintaining incentives. Finding the balance needs to be agreed upon and built into the plan with regard to how it benefits the seller and buyers – indeed, all employees of the company committed to seeing the firm grow — in order to establish the trust necessary for a successful transition.










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