Succession Planning for Financial Advisors: Key Steps to Consider

By Bill Sowell

Creating a succession plan is an essential step for a financial advisor to ensure the smooth transition of their practice and client relationships in the event of retirement, disability, or other unexpected circumstances. That said, a succession plan is more than a document spelling out who will take over the company you’ve built or grown. It preserves the culture of your company by formalizing its values and establishing a legacy for you and a model for your team to follow.

Industry publications note that roughly 25-30% of financial advisors have a written succession plan in place. A small percentage for sure. However, I have been working with financial advisors for nearly 25 years and I think that number is closer to 5%. That is not a typo. In my experience, I believe that roughly 5% of financial advisors have a written, executable, and financed succession plan. I may be wrong – but I doubt it. 

What does it take to create a succession plan of your own? Here are some key steps to consider when creating a succession plan as a financial advisor from industry veteran Bill Sowell. Bill started a journey 22 years ago to create a pathway of freedom for financial advisors. Committed to providing true independence for them, he founded Sowell Management a Registered Investment Advisory (RIA) to become the advisor to advisors. His firm has grown from just a few employees to more than 30 today and a nationwide client base with more than 100 IARs and over $4 billion in AUM/AUA as of April 2023.*
– Introduction by Jason Inglis

Ready to take the first step toward securing the future of your financial advisory firm? Schedule a call today.

Bill’s key steps to consider when creating a succession plan

Step 1: Define your objectives.

Start by clearly outlining your goals and objectives for the succession plan. Consider factors such as your desired timeline, financial considerations, and the type of successor you prefer (e.g., internal, external, or a combination). The most successful succession plans address the goals of every stakeholder, paying attention to how your succession will impact others will help you craft a better plan. It’s also essential to think about your clients’ needs because any transition will impact them personally. You may also want to consider seeking legal and financial advice to address any legal, tax, or financial implications associated with the succession plan. Consider aspects such as ownership transfer, valuation of the practice, partnership agreements, and any regulatory requirements that may apply.

Step 2: Identify your successors.

Spend some time and evaluate potential candidates who could take over your practice. This could include other advisors within your firm, junior partners, or external professionals. Assess their qualifications, skills, experience, and compatibility with your clients and business values. If your plan calls for internal succession, make sure you get a sense of their objectives and plans for business growth. Once you have identified potential successors, focus on developing their skills and knowledge to ensure a smooth transition. Provide them with training, mentorship, and opportunities to gradually assume greater responsibility within the practice.

Step 3: Client communication and transition.

Much of your company’s value rests in future revenues from current clients, so you should also consider what you’ll need to do to reassure and retain those clients through the process. Establish a clear communication plan to inform your clients about your succession plan. This will help build trust and ensure a seamless transition. Introduce the identified successors to your clients and involve them in client meetings to facilitate the transition process and build relationships. Instead of an abrupt handover, consider implementing a gradual transition where you slowly reduce your involvement over time. This approach allows your clients to adjust to the new advisor gradually while you continue to provide guidance and support. If clients are uneasy about changes, they won’t hesitate to move their business to one of your many competitors.

Step 4: Document, Monitor and Adjust.

Remember, creating a succession plan requires careful consideration and should be tailored to your specific circumstances. It is advisable to consult with legal, financial, and business professionals who can provide guidance and help you develop a comprehensive plan suitable for your practice. Put your succession plan in writing, detailing the roles, responsibilities, and expectations of all parties involved. Include provisions for unexpected events, such as disability or death. Regularly review and update the plan as needed. Regularly monitor the progress of the succession plan and make adjustments as necessary. Stay involved in the transition process to ensure the successor is meeting client needs and the business continues to operate smoothly.

Bill’s Bottom Line

You may think you know what your company is worth, but do you? Strongly consider using an outside expert to provide an accurate valuation. Ideally, you should begin the planning process by thinking in terms of years, rather than months or weeks. A longer planning timeline allows more careful consideration of all the options and can help prospective owners line up the financing they’ll need to execute the transition. Longer, carefully planned changes will allow you to make adjustments that can impact the value of the business, while also reducing anxiety among clients and staff. Many owners wait too long to begin succession planning – and the result can be devastating. The sooner you start the succession process, the more options you can choose from.

Ready to take the first step toward securing the future of your financial advisory firm? Schedule a call today.

* AUM/AUA is as of April 2023

BLOG DISCLOSURE: This website blog is published and provided for informational and entertainment purposes only.  The information in the blog constitutes the content creator or guest blogger’s own and it should not be regarded as a description of services provided by Sowell Management. The opinions expressed in the blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry.  The views reflected in the commentary are subject to change at any time without notice.

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