In financial advisory practices, the phrase “it’s never too early” applies in many ways, but nowhere is it more crucial than succession planning. The reality is that none of us are getting younger (not even your clients), and building a robust plan for your business’s future ensures you leave it in good hands while maximizing its value. So, what exactly does succession planning entail, how can it benefit you, and what steps should you take to guarantee a smooth transition?
The Importance of Succession Planning in Financial Advisory
When you’re knee-deep in client meetings, portfolio reviews, and compliance updates, it’s easy to push succession planning off to “someday.” But the truth is, someday sneaks up faster than you think, and failing to plan could mean losing out on a significant financial windfall. According to experts, adequately planned succession can lead to multipliers of 2x-3x your trailing twelve months (T12), with certain factors like client demographics, AUM size, and revenue mix influencing the valuation. It also ensures continuity for your clients and can protect your legacy in the financial world.
Think of it this way: your business is like a marathon, not a sprint (or at least, we hope it’s not). To ensure someone can carry the baton when you’re ready to hang up your running shoes, you need a strategy that prepares your clients and your successors for success. But how exactly do you start?
Finding a Broker-Dealer with Strong Succession Planning Programs
Most top broker-dealers recognize the importance of succession and acquisition, and many have dedicated departments or teams to help you through the process. These broker-dealers provide structured programs with financing options, valuation support, and transition assistance. Some even offer partnerships with banks like Live Oak, which specializes in financing advisors who buy or sell a book of business. And let’s be honest, who wouldn’t want a financial partner that understands the value of your hard-earned AUM? (To learn more about financing the purchase of a financial advisory practice or book of business, check out this detailed guide from Live Oak Bank)
When vetting broker-dealers, ask about their succession planning services. They may have an internal marketplace where books of business are listed for sale, or they might connect advisors looking to retire with those looking to grow. These programs often include comprehensive guidelines for:
- Valuing your practice: Knowing your business’s current value is key. Multipliers vary, but a strong client base, consistent revenue, and clean compliance history will push you to the higher end of the range.
- Negotiating the sale: Whether you’re buying or selling, a broker-dealer can help facilitate fair negotiations and ensure both parties are satisfied with the terms.
- Transitioning clients: Your clients are the backbone of your business, and any transition needs to be as seamless as possible. A broker-dealer with a robust succession program can help ensure high client retention rates.
How to Find a Book of Business
For advisors looking to expand through acquisition, the process starts with finding a book of business that matches your style, size, and client preferences. A few key strategies include:
- Leverage Your Broker-Dealer’s Succession Department: Most larger broker-dealers offer a marketplace where advisors can list their books for sale. These platforms are often confidential, allowing sellers to transition quietly while maintaining client relationships.
- Network with Advisors: Build relationships with advisors nearing retirement. Many advisors choose to transition their business to someone they know and trust.
- Use Third-Party Financing: Banks like Live Oak Bank specialize in financing these transitions, and they can be a critical resource in securing the capital needed to buy a book. Don’t be shy to explore creative financing options.
- Work with RepRecruit: At RepRecruit, we’re more than just matchmakers for advisors and broker-dealers. We can also help you find opportunities to buy or sell books of business and guide you through the entire process.
Negotiating and Transitioning a Book of Business
Once you’ve found a book of business, the real work begins: negotiation. Be prepared to discuss:
- The multiplier: As we mentioned, expect somewhere between 2x and 3x T12, but various factors like client age, AUM, and revenue mix can affect this. Younger clients and fee-based models often command higher valuations.
- Payment terms: Many deals are structured over a multi-year payout period, often with earnout provisions tied to client retention. Be clear about expectations for the transition period.
- Client introductions: Client transition is one of the most delicate parts of any succession. You’ll want a detailed plan for how the retiring advisor will introduce you to their clients and what steps will be taken to make clients feel comfortable with the new relationship.
This is where teaching clients your way of business becomes critical. Your business is more than just portfolios and asset allocation – it’s the relationships and service model you’ve built. Make sure your successor or, if you’re the buyer, you, as the new advisor, uphold these principles. Remember, continuity breeds trust.
The Importance of Teaching Clients Your Way of Business
Clients aren’t just buying financial advice from you—they’re buying into your entire approach. Maybe it’s your personal touch, your tech-savvyness, or your ability to explain complex strategies in a way that makes sense to non-financial folks (you know, the ones who think an ETF is some sort of high-tech gadget).
As part of a successful transition, the incoming advisor must adapt to your client’s service style. You don’t want your clients to feel like they’re getting a fast-talking stockbroker when they’re used to your laid-back, personable approach. Plan an onboarding strategy that includes a smooth handoff, clear communication, and transparency about what clients can expect.
Navigating Broker-Dealer Succession Programs with RepRecruit
So, how do you take all this information and put it into action? That’s where RepRecruit comes in. We specialize in helping advisors find the right broker-dealer with the perfect succession planning programs. Our team is experienced in navigating complex transitions, ensuring you get the best deal, whether buying, selling, or planning your eventual exit from the business.
With our assistance, you’ll have access to broker-dealers with strong succession departments that offer support for valuations, deal negotiations, and client transitions. We’re here to guide you through each step of the process, whether finding the right buyer, helping negotiate the perfect multiplier, or making sure your clients don’t even blink when their new advisor takes over.
Final Thoughts
Succession planning might not be the most exciting topic on your to-do list, but it is one of the most crucial. By starting early, finding a book of business, and ensuring a smooth transition, you’ll protect your legacy and maximize the value of your life’s work. And with RepRecruit in your corner, you’ll have the resources, guidance, and network to make it happen smoothly.
So, whether you’re ready to buy, sell, or start thinking about the next decade, contact RepRecruit today.
Call us at 661-266-0099, and let’s ensure your next move is your best!