How to Prepare Your Advisory Firm For A Successful Transition

Nov 22, 2022 5 min read

“I’ve sold my practice to Peter Jones. He’ll be taking care of you going forward.” Words no client should ever have to hear from his or her financial advisor.

Your clients don’t want to be bought and sold like an asset. They trust you to be fully invested in their long-term success, as well as the success of the next generation. Aligning your succession plan with theirs ensures you don’t default on your commitment to their business. It also creates significant value for your practice while simultaneously setting your successor up for success.

So, what do your clients want to hear in anticipation of your exit?

“I value what we’ve built together, and I’ve brought Peter Jones into my practice to work with me over the next few years so that you and your family can count on continuity of service for the long term.” Of course, to say this, you’ll need to create a long-term plan, starting long before your departure.

As a succession professional that knows the ins and outs of business transition, here are some important considerations to keep in mind.

Your Business is Built on Relationships.

For many advisors, the first port of call when they consider retirement is negotiating the best deal. With this being their primary concern, they make the mistake of directing all of their attention to the optimal legal and financial structure of their succession plan rather than focusing on finding the right successor for the job.

Choosing a successor should be a strategic decision, not an emotional one. You may have a longstanding relationship with a colleague — someone who’s proven themselves to be an excellent advisor that delivers second-to-none client service. However, that doesn’t mean that he or she is cut out for business management, let alone business ownership.

One practice we worked with brought in a junior partner with a plan to transition the business over multiple years. They provided time and support for them to learn to manage the different challenges a business owner would face. With the additional support, the advisor felt ready to hit the ground running when it was time for transition. They succeeded in not just maintaining the book but enhancing operations and the ability for it to grow. For the retiring advisor, it meant not just increased value but also a sense of security that their legacy and business would continue. Managing a practice and client relationship effectively can be very different from running a business.

Similarly, if yours is a family-run practice, you may be operating on the assumption that your firstborn will eventually step into your shoes, but do you know if they possess the business skills required to maintain and grow your enterprise in accordance with your long-term vision? Furthermore, have you considered the potential conflict that could arise between your chosen one and his or her siblings?

Families are complex. Family businesses, even more so. While emotions shouldn’t drive your decision, they can’t be ignored. Whomever you decide to elect as your successor, you can be sure someone in your family or practice is going to object — either because they were expecting to become your successor or because they feel they should be financially compensated for not being given a stake.

Whatever emotions surface, it is best they arise before a succession deal is signed. This gives all parties a chance to speak up and be heard — a common courtesy. Furthermore, their input may uncover possibilities you weren’t previously aware of which may, in turn, impact your decision-making.

How Will Your Successor Finance His or Her Stake in the Business?

Will they be seeking investors to fund their acquisition, or will they be funding it themselves? If the latter, your buyout (or at least a portion) will likely come from the business’s future revenue. If your buyer isn’t proficient at running a profitable business, you run the risk of not being paid, which brings us back to the importance of electing a successor who will excel at ownership as much as he or she will excel as an advisor.

Decision-making aside, you play a major role in your successor’s potential for success. Regardless of whether you end up selling your business to a current employee, a family member, or an outside buyer, if you want to ensure your succession goes according to plan, you should allow time to train your successor.

While your business will technically no longer be your responsibility once the transition is complete, you don’t want your clients to feel completely abandoned when you make your final exit. Finding — and preparing — your successor to pick up where you leave off will enable you to assure your clients that your legacy shall continue and that you’re doing all you can to make sure they remain in good hands.

In the interest of a harmonious transition and training experience, you’ll want to select an owner you can work with because there will be much work to be done. The longer the lead time, the greater your opportunity to acquaint them with your business, teach them skills they may be lacking, and integrate them into your company’s culture in the interest of supporting a healthy, happy future work environment for your employees.

If you haven’t yet embarked on a succession plan, now is a good time to start thinking about it. The transition team at Purpose Advisor Solutions has the experience to help you protect your legacy, as well as the client relationships upon which you have built it.

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