A whitepaper titled ‘Passing The Torch – How To Plan For a Successful Succession’ published by Raymond James gives interesting insights on how advisors can go about planning their succession.
As a financial advisor, you’ve spent an entire career helping countless clients plan for their lifelong goals. But how much time have you spent planning for your personal goals – For when you’ll fully or partially retire? To whom you’ll pass ownership of your business? For how you’ll help your family, your colleagues and your clients make the transition? If you’re like many of your peers, you’ve probably spent far less time than you should.
This article will explore the “how” and “when” of succession planning.
How to plan your succession
1) Short-Term (Catastrophe and Contingency) Planning
To protect any independent business and preserve value for the owners in the event of death or disability, an independent advisor should, at the very least, establish an agreement with another qualified financial advisor – who may or may not be a long-term ownership successor – as someone who would take over client relationships and compensate the advisor’s spouse and heirs in the event of accidental death or full disability. Without a written plan, the full value of an independent practice will almost never be realized by the owner or his or her beneficiaries.
2) Long-Term Succession Planning
An independent advisor would still need to create a plan for the methodical and planned transfer of ownership prior to a planned retirement and sale of the practice.
When to plan your succession
They say timing is everything, and when it comes to succession planning, they’ve never been more right. Choosing when to begin implementing your succession plan and transferring ownership of your practice can be as important as developing the plan in the first place – which is why it should be part of your planning process from the outset.
Even if you’re not sure of an exact date or even year you plan to exit the business, take your best guess. It’s much easier to simply delay implementing a plan than to attempt to create one when you’re finally ready to step down.
While conventional wisdom sets the ownership transfer starting line about five years out from your exit date, most experts recommend allowing even more time. For every year you wait, you lose a little bit more control over the eventual outcome of your plan and potentially risk a diminished market value. Each of these elements of a well-designed succession plan might take more than five years to complete:
- Gifting business interests to family members before the sale
- Accumulating personal cash and assets outside the business
- Hiring or developing a successor
- Adjusting timing of a sale based on market or industry conditions
So, it’s best to begin with the end in mind. Establish a possible retirement date and ensure your succession plan is structured with that end in mind, even if you end up delaying it.
Raymond James is a diversified financial services holding company with subsidiaries engaged primarily in investment and financial planning, in addition to investment banking and asset management.
