It is a popular notion in the industry that only older advisors are and should be worried about succession planning. I beg to differ. Let me cite the example of a sole practitioner in Boston, MA I’ll call John Jones, who I recently spoke with after he submitted a Successions Readiness survey on our website. John is only 42 years old and launched his RIA 5 years ago but is already thinking about the future of his business and more importantly, about the future of his clients. He is not looking to retire anytime soon.  What he is looking to do is the right thing for his clients by ensuring continuity of their service in the likelihood of an unanticipated event or should he choose to transition his business one day.  From my experience, people like John are hard to come by because there is a perception that succession planning should be put off until a later point in time, for instance when you are closer to retirement. But I would encourage more advisors to think about this earlier in their career, not only as part of a retirement plan but also as part of a business plan. 

Like many sole practitioners in the industry, John was not sure what his options were.   Rather than postpone this decision, he chose to investigate the options available for an advisor like him.  I’ve had many conversations with advisors interested in our Successions program, who are in a similar situation as John or in other stages of their career.  While each case is unique and I enjoy learning about the stories of advisors and the businesses they have built and their clients, I have come to realize that there are some universally applicable principles in defining your succession plan.  Here are the 3 things to keep in mind while planning for the future of your business:

 

1. Right Fit: The most critical aspect of external succession planning is finding the right firm match. The best match happens when two firms not only share similar values and principles, but also understand each other’s client niche, service model and investment philosophy. There is likely no identical firm to yours, but think through criteria that are important to you in a firm that would serve your clients in your absence. Make a list and prioritize them. It might seem like a time-consuming exercise but it will save you the hassle of going down the succession road with a firm and pulling out last minute because you discovered a deal breaker. John had two non-negotiable items: he wanted a firm that believed in market-based investing, and a firm that provided comprehensive financial planning services to its clients.  There were multiple possibilities but his prioritized criteria list helped him focus his search and shortlist succession partners in a targeted manner.

2. Right Time:Many people struggle with the question – “When is the right time to start putting together a viable succession plan?”  The answer is NOW. Whether you are a $500 million dollar firm or a $25 million dollar firm, whether you are 35 years old or 60 years old, your clients are important to you and you should be thinking about them and their future in your absence. It is never too early to start planning for the future of your business.  John intends on practicing long in to the future but he realized that one can never predict the future. In fact, he helps his clients plan for it all the time, so why treat himself any differently!

3. Right Value: There are various articles you can read on how to value your business, but if you are a solo practitioner, your business is not worth much if you are not around.  Do not get hung up on the revenue multiples being thrown out in the industry.  Instead think about how to build a business that can bring some value to the partner you identified. Only then can you ensure that your family gets some equity value out of the business that you have put your blood and sweat into building. John realized that creating a succession plan did not mean trying to squeeze out the last penny from a potential successor, but finding one that could and would take care of the business when he was no longer around.  And more importantly, finding a successor who has the capability to finance the buyout of his firm in the future!

 

Whether you are like John who recently launched his own RIA firm, nearing retirement, or somewhere in between preparing for and defining the future of your business is one of the most important decisions you can make for your clients and your family.  As for John, we worked with him to find a larger firm in his local area that shared his ideals and philosophy and that looked like a bigger version of his firm. He found a good future home for his clients, and peace of mind that his family would be financially protected.   

 

 

Anita Venkiteswaran is a Vice President at Focus Financial Partners, where she heads the Focus Successions Program