Succession Planning

With over 100,000 advisors set to retire and increased regulatory requirements, legacy/succession planning has accelerated dramatically. Advisors may have very different plans: Succession Lending allows retiring advisors to customize your exit strategy:

  • Legacy financing facilitates advisor’s vision of their practice for decades to come. Oftentimes, senior advisors stay with the new larger practice to build a greater lasting legacy for their firm.
  • Other retiring advisors wish to move on to the next chapter of their life through travel or a new occupation.

For advisors considering legacy/succession planning, there are several important client and firm factors:

Client Considerations

Transition Process

Advisors can begin preparing clients for succession years before the senior partner decides to begin reducing time at the office. Clients appreciate knowing who will be responsible for their investments in an unexpected event or retirement; optimally legacy/successionary planning occurs over the course of years, not months. There are several key considerations for a fruitful transition:

  • How long will the selling advisor continue to service clients?
  • Are specific employees assigned transition responsibilities?

Service Model

Different practices have a myriad of approaches to how they service their client base. Select advisors have a documented service model segmented by client AUM and/or revenue. Other advisors custom tailor service for every household. There are merits and disadvantages of both. Regardless of service structure, key questions emerge:

  • What service model have clients become accustomed to in the past and what service model will they receive going forward?
  • Which personnel have been client facing in the past?
  • Will client facing personnel be retained at the new entity?

Investment Philosophy

As with other client practice areas, advisors approach to their client’s investments vary greatly. Select advisors have a clearly defined investment process that is uniformly applied to all clients via model portfolios. Other financial advisors custom tailor the investment portfolio for each client. Important considerations need to be addressed:

  • What investments are currently held in clients’ portfolios?
  • Will there be a significant change to clients’ portfolios due to succession?
  • What tax implications could arise from portfolio alterations?
  • If changes are implemented, who will communicate the changes?
  • Will a member of the seller’s practice communicate the changes?

Firm Considerations

Fee Structure

The decision to utilize commission based shares, annuities, life insurance and/or advisory fees varies greatly amongst advisors. When advisory fees are utilized, the percentage charged by different advisors varies. Client considerations around fees are crucial to a successful transition, including:

  • Will there be a shift from one type of fee structure - commissionable versus advisory?
  • Will there be a shift in transparency of fees?
  • Will the seller communicate fee changes to clients?
  • Will other personnel will be included in discussions around fee changes?

Geographic Footprint

Practices differ in their geographic diversification. Geographic considerations may include:

  • How will remote clients be serviced?
  • Are satellite offices required?
  • What costs will be incurred from remote clients?

Technology

Advisors integration of evolving technology can be driven by their respective IBDs. Key considerations for technology consolidation include:

  • Are the buyer and seller at different IBDs?
  • If so, what technology platforms are utilized at each?
  • If differences in technology exist, which programs will be utilized in the consolidated firm?
  • Should the consolidated entity consider other/new technology platforms?

Personnel Integration

Oftentimes clients’ decision to stay or leave the new consolidated practices hinges on the retention of client facing personnel. Daily communications is commonly assigned to select staff members who actually have more frequent contact with clients than the selling advisor or his/her chief investment officer/analyst. Personnel decisions are crucial to transition success, such as:

  • How long will the selling advisor remain in contact with clients?
  • Is there overlap in personnel?
  • If so, will responsibilities be reassigned?
  • Will personnel be terminated?
  • If so, who will be responsible for communicating terminations?
  • What impact could personnel termination have on client conversion?

Culture

Advisory practice cultures vary greatly from practice to practice. Buyer and seller need to recognize cultural differences and address key considerations:

  • Is there a clearly defined org chart at the new combined firm?
  • What is the expectations for work ethic at both firms?
  • Were “summer hours” employed at one of the practices?
  • What were both practices policies concerning PTO?
  • What benefits package will be utilized by the acquiring practice?

Succession Lending’s Loan Director’s guidance on legacy/succession advisors yields financing required for whatever road lies ahead. Additionally, our Loan Directors assist buyers in securing funding for a successful practice transition.

Ready for the next chapter in your career?