Ensuring the longevity of your RIA firm starts with a well-thought-out succession plan that aligns with your legacy and the future aspirations of your team and clients.
Succession drama is great for TV, but do you want that for your business? A succession plan offers a roadmap to monetize what you've built while helping your firm continue to thrive. An increasing number of RIA founders recognize the need for an exit strategy. According to Schwab's 2024 Independent Advisor Outlook Study, 41% of advisors believe aging advisors are the most significant factor shaping the RIA industry. This matches Cerulli's finding that 37% of advisors will retire in the next 10 years.
A well-thought-out succession plan not only prepares your firm for a smooth transition but also ensures that your legacy continues. It helps to set your team up to succeed after you're gone and makes sure clients will get the service they expect. Without such a plan, your firm could face a crisis if a principal leaves suddenly, particularly if the firm is small.
There are four basic approaches to RIA succession plans: selling to an outsider, transferring ownership to existing owners or employees, merging with another firm, or recruiting an external successor. Each approach offers a range of opportunities and challenges.
Selling the firm to an outsider is likely to yield the highest dollar value in the short term, but you may have less control over the firm's future. Transferring ownership internally can maintain your firm's culture and values but can be complicated and time-consuming. Merging with another firm can achieve both short- and long-term goals, providing new services to clients while ensuring continuity. Recruiting an external successor offers another path, although it comes with its own set of challenges, including ensuring a good cultural fit and maintaining client and staff satisfaction.
It's important to start talking now about what you, your team, and your clients want. This will help you develop a succession plan that's good for everyone involved. For your business to succeed after you're gone, it will need to retain current clients and keep together a team that is experienced, has good relationships with clients, and shares your values.
The better you understand what clients and employees want to see in a succession plan, the more successful the transition can be. Including succession conversations in your strategic planning can help clarify your intentions and set the stage for a smoother transition.
However you plan to transfer ownership, you'll need to assess the value of your firm and think about how much of that value you want to take with you into retirement. Be prepared for an independent assessment to come in lower than you had hoped, especially if your clients are in the last years of life.
If your firm's valuation is important to you, you might undertake a strategic planning process that focuses on ways to increase the firm's value. A strong value proposition can make your firm more attractive to the right successor. Additionally, an honest assessment of the money you'll want from your firm will help you focus on the succession models that can most closely match your expectations.
Once you've chosen the right succession model, the next step is to implement your plan. This involves setting up the legal and financial structures needed for the transition, communicating the plan to your team and clients, and ensuring that the successor is prepared to take over.
There's no such thing as a perfect succession plan, but starting early and thinking through various scenarios can help you adapt to challenges and complete a succession process that benefits everyone. Many advisors find that succession doesn't quite play out how they thought it would, but by starting early, they're able to adapt and ensure a successful transition.