Starting a solo RIA firm is an exciting venture. As Cerulli reports, RIAs will control nearly one-third of advised assets by 2027. However, business owners should think ahead and take additional steps to ensure they are maintaining their firm’s profitability and growth rate, which will make it more attractive to sell.
Today, one-third of business owners don’t prioritize succession plans, setting a dangerous precedent for an aging cohort. As the vast majority of solo RIAs approach retirement age and firms continue to consolidate, it’s important for advisors to understand how to navigate the succession planning process to achieve the best possible outcome.
It’s clear that putting together a plan that sets the business up for success for generations to come requires critical thinking and the right partners. While there are more opportunities than ever to sell, ranging from M&A to private equity money, solo-owned RIA firms need both time and deep reflection to reach the right decision that will support them in retirement.
Solo Operators Face Unique Challenges
There is a dual problem emerging in our profession: solo-RIA owners are both approaching retirement age and hitting their growth capacity about a decade before retirement.
It’s no secret that the age of the profession continues to increase—with over one-third of the profession retiring in the next decade. Indeed, over the next 10 years, 100,000+ advisors plan to retire, representing 37.5% of industry professionals who manage 41.5% of total assets. While most advisors expect to retire between the ages of 60 and 75, solo-owned RIAs oftentimes push harder and stall out around the age of 50. That’s likely because industry benchmarking suggests most advisors hit their client capacity between 30–40, or $220,000–$320,000 in revenue.
There’s a danger of stagnation: during this time, the firm’s profitability starts to tank, making it not well-positioned to sell.
An FP Transitions report analyzing more than 5,000 valuations over the course of five years suggests an edge in shared leadership, citing: “Single owner firms grew their net new clients by 9%—a solid growth rate. But multi-owner firms? They saw a staggering 20.2% growth in net new clients! That’s more than double the rate.”
Teaming up in advance of retirement may be a fruitful and fulfilling solution.
Succession Planning Doesn’t Happen Overnight
Whether you plan to bring on a partner, one thing is clear: it’s never too soon to start gathering the elements needed for successful succession planning.
You’ll likely find the approach familiar, as succession planning can be as simple as recreating the retirement planning process you walk clients through every day.
Studies suggest owners will likely need at least four years to create a plan and find the right successor. While the majority of RIA owners prefer to sell or transition their business internally, 34% are now considering an external sale or are unsure of their succession plan (30%).
To better determine the right path, consider these non-negotiables. Is retaining the company culture more important than the valuation? Do you want to walk into the sunset or stick around for another few years in an advisory capacity?
The most common options today include selling the business to a family member, merging with another practice, or selling externally to a larger wealth management firm. Conducting the proper due diligence in advance will likely highlight the most viable options and ensure both financial and legal records are in good shape.
It’s Time to Lean on Partners
Putting together teams is difficult, a prominent reason why 47% of advisors continue to work as solo practitioners. However, you will need outside, trusted resources as you approach the end of your career. RIA leaders who have spent decades building and growing their practice will need to plan years ahead for the successful continuation of their business.
It’s incumbent on solo operators to lean on partners of their choice. Your custodian can likely help connect you with firms looking to acquire or firms that can provide an evaluation.
It will also be helpful for you to evaluate if you need to streamline any partnerships or services to ensure the business is more attractive to buyers. Striking a balance between technological advancements and personalized touches will support continued growth as you shore up operations. Clients still need to have a seamless experience, even as succession plans are transforming the business internally.
It’s Time to Take Your Own Advice
Financial advisors cultivate some of the most trusted and enduring relationships in their client’s lives and are always looking out for their long-term goals. Sometimes, they also need to turn inward to ensure they’ve given the same caution and care to themselves.
Well before retirement arrives, lean on your own trusted partners to have honest conversations about what is most important to you before retiring. Retirement is an exciting prospect: you should give yourself time to evolve in the last stage of your career to ensure it’s the most powerful and transformative period of your working life.
By taking action to ensure you retain your firm’s profitability and growth rate before it comes time to sell and that the valuation is based on sound information and not grossly inflated, you can approach your remaining working years with ease and confidence.
Mike Watson is head of RIA custody at Axos Advisor Services
