Advisor Succession Planning: Do No Harm To Your Family, Clients & Legacy
released by the FPA and Janus Henderson revealed that 60% of advisors who are within five years of retirement have no exit plan. It’s the story of the shoemaker whose children need their shoes fixed.
If you are part of the 40% of advisors who have a plan, make sure it has compliance approval and will past the muster of regulatory agents. That might mean that you pay for a once over of your plan by a compliance consultant or lawyer who has a background in dealing with succession cases. Better now than having problems later.
Let’s face it: None of us wants to do this work. We’d like to live forever, but reality dictates differently.
How will you leave the firm you started? Your exit can come about as a result of a planned event, such as you creating and following a succession plan, or an unplanned event such sickness (yours, a spouse’s, or a family member’s can greatly affect you and your business) or death. As a business owner and advisor, it’s important to plan for both
For better or worse, for richer or poorer, plan for your future. Unlike most businesses, when you get too sick to work or die, if you won't have a plan in place, your family members cannot just take over your business. Instead, you will leave your family with no money until the disposition of your firm is dealt with by the extra lawyers your family will be paying for to deal with all the regulatory issues involved.
And you'll leave all those clients you love in the lurch. As someone who has had the best interests of your clients in mind for so many years, how could you leave them that way?
This article is to help you start the process of creating steps on how you will leave your business. Even if your business is a year old, you need a vision for a succession plan. You can even create a succession plan on one page and then work with your compliance officer to make it "all legal" in the eyes of the regulators. Everything needs to be in writing -- just as you help your business clients create.
Below are some questions to answer to help you get started with a succession plan.
Your Exit – 11 Questions To Consider
- What are comparable businesses selling for?
- What’s your firm worth now?
- How long do you want to work?
- How many steps would it take you to exit? (see next section)
- Do you know how much money you need to retire?
- Who will be on your succession advisory board?
- When you exit, how many clients do you have?
- When you exit, what services or products are you selling?
- How large will your team be?
- What options do you have for selling your business? (see next section)
- What’s your back up plan should you get sick or die before your planned exit date?
Your Exit – What Will Yours Look Like?
There are two separate parts to planning for your retirement. One is to plan what you’d like to happen, and the other is to look at worst-case scenarios.
What I find most often are clients who create a 2-tier or sometimes a 3-tier exit, often slowing down or speeding up growth for “x” years, then retiring.
The first few events on the list below are about worst-case scenarios. We seem to read more stories about people having no plan, and the consequences on their families, business, and team. As advisors, someone like a spouse or friend can’t just come in and take over the business. There are regulations that need to be followed.
That’s why putting your plans in writing is so important.
Plus, when you have a plan, you’re better able to empathize more with YOUR clients as you talk about planning for the future. At least I found this to be true for me after I created my first business plan.
19 Ways To Exit Your Business
Plan for the future of your business, be it the next 12 months or 20 years.
- Drop dead at your desk
- You become unable to work due to sickness
- There is a divorce or spouse dies
- You become disabled
- Leave the company to languish on its own
- Get tired of the business and start something different
- Do less advising and more managing of the growth of the business
- Sell to an outside party
- Sell the company to employees’ ESOP
- Sell the company to one or two key employees
- Creates a public company, IPO it
- Work fewer hours
- Change your position in the company (i.e. write a book and speak, start a podcast, etc.)
- Hire a CEO and become a manager or employee
- Retain ownership as you groom your successor
- Transfer, leave, or sell the company to accredited family members
- Continue selling, but at a firm that offers you an exit strategy
- Liquidate it
- Franchise or license your processes to others
Sure the plan may (and will) change, but you’ll be protecting yourself, your legacy, your clients, and your family by putting it all in writing.
Related: Advisors: Launch Yourself Into the Next Decade With a Strategic Plan