Succession Planning Marketplace

Art by Karlotta Freier

A 2018 study by the Financial Planning Association found that over 90% of advisers recognize the risks associated with having no succession plan, yet just 27% had one in place for when they no longer want to work full time.

That number might have gone up as the coronavirus pandemic highlighted the importance of having such a plan, to deal with the unexpected—and as a hot mergers and acquisitions market has opened potentially lucrative avenues for succession planning.

“Advisers are experiencing generational change,” says Alicia Goodrow, a partner in legal firm Culhane Meadows, who focuses on succession planning. “They’re often closely held, and sometimes family-owned, businesses that have not looked at the road past the retirement of the founder or, perhaps, the founder’s son or daughter.”

Still, many advisers may put off succession planning to avoid thinking about their own future outside of the firm—or simply because it is a time-intensive, complicated task. Nearly half of registered investment advisers say the biggest challenges when implementing an internal succession plan are identifying a successor (49%) and agreeing on a time frame for executing the plan (28%), according to a study last May by Dimensional Fund Advisors. Challenges exist when it comes to external succession plans, as well, including finding a buyer, valuing the firm and preparing it for sale.

In recognition of these challenges, several consultants offer services aimed specifically at helping plan advisers create a succession plan that best suits their business.

Investment Consultants

While succession planning a few decades ago might have required the services of investment bankers, there has been a rise in investment consultants over the past decade who specialize in helping advisers with succession planning, says Catherine Williams, vice president and head of practice management at Dimensional Fund Advisers.

Those consultants can help plan advisers not only with valuations and finding a successor, but also with making sure the successor is the right match for the firm and its clients in terms of business alignment and culture.

“They know how to engage the organization and figure out the soft stuff, right alongside the harder stuff such as the numbers,” Williams says.

FP Transitions has been helping advisers through the process of succession planning for more than 20 years. Most advisers start working with the firm’s consulting team to determine the best transition scenario for them, says firm founder and President David Grau Sr.

Once advisers have settled on a plan and identified a successor, they move on to analytics and compensation to work out the transition’s details. Then, the company helps the firm with its valuation, and its legal team provides guidance and the documentation necessary to put the plan into operation.

The Next Generation

Grau says his firm has seen increasing demand for its services—and growing interest from potential successors.

“We seem to have many really good next-generation advisers out there who are willing to, or who would rather, buy into and build on top of an existing business than hang their shingle out and start from scratch,” Grau says. “You can’t have a succession plan without next-gen talent.”

Mark Contey, chief business development officer at LaSalle Street, which helps adviser clients connect with potential successors, says such transactions can be a great deal for both parties.

“The plan adviser space is a great way for young advisers to enter financial advising, [when] they come into an existing practice that’s generating revenue and has the ability to support someone for a few years economically,” he says.

LaSalle Street also helps finance succession deals by offering zero-rate loan transition packages to clients. “It helps us recruit and find some potential successors or junior advisers to come into a practice, and it helps the retiring advisers because they know that LaSalle is the bank, and you don’t have to go out and find a third-party lender and pay a double-digit interest rate.”

Some larger firms are also launching products and services to help independent advisers thinking about what will happen to clients and staff once they move on from the practice they built.

This past October, for example, Raymond James unveiled “Practice Exchange,” a succession planning platform for that firm’s advisers. The cloud-based tool, powered by FindBob, provides advisers with M&A software, prospective buyer/seller matching and other succession-planning education materials.

Finding the Right Successor

The challenge of locating a good match for the exiting team leader may be more difficult for plan advisers than some other business owners, given the specialization and regulation in the field, says Alex Reffett, co-founder of East Paces Group. “We help advisers build an infrastructure template and get their assets in order. Then we have a transition period where they can offload the work and have our advisers take over, so they can sunset their leader.”

While it can help to work with a specialist in succession planning, those who perform those services for other professional firms can also assist, Goodrow says. “A solid, private-company corporate lawyer can help quarterback the plan toward an exit. Your first call shouldn’t be to the business broker.”