Schwab Reports Cover RIA Succession, Transition Planning

Charles Schwab and Co., Inc., said it is releasing two Schwab Market Knowledge Tools reports to help registered investment advisers (RIAs) tackle succession planning and understand M&A deal structures.

The reports, “Succession Planning: Your Firm’s Future Starts Now” and “Transition Planning: Valuation and Deal Structure,” examine design and execution of succession plans, the factors and considerations driving RIA firm valuation, and common M&A deal structures being used in the industry today, Schwab said. The Schwab Market Knowledge Tools series is an ongoing program of industry papers for Charles Schwab clients.

In the report about succession planning, Schwab details four primary steps in establishing and executing a succession plan, including:

1. Setting strategic goals and creating a plan taking into account the firm’s business objectives and an adviser’s professional and personal objectives.

2. Identifying a potential successor that has the skills and expertise necessary to manage the key elements of running an RIA firm, including business management, client relationships and service, and the firm’s investment management philosophy.

3. Structuring the right kind of deal that clearly outlines roles and responsibilities during the transition, ownership stakes and ownership transfer timetables, and specific deal structure.

4. Implementing the plan with a timeline for key transition events, such as when a successor becomes the decision maker in the firm.

Transition Planning

Schwab said its report about M&A deal structures outlines key drivers of RIA firm valuation and explanations of how cash flow, expected growth trajectory, and risk mitigation influence value. The report also outlines common valuation techniques used for RIA firms and common elements of RIA firm deal structures.

“Similar to planning for succession, walking through a valuation process can be very beneficial even for firms that are not currently engaged in M&A activity,” said David DeVoe, a managing director with Charles Schwab Advisor Services, in a Schwab announcement. “By gaining a better understanding of the key valuation factors including cash flow, growth, and risk minimization, advisers can build stronger, more efficient, and more profitable firms.”