Whether you are building your book of business or starting to think about retirement in the future, it’s never too early to develop a plan to ensure your business and clients are set up to succeed when you decide to exit.

Planning starts with an understanding of succession strategies and determining which one best fits your practice and time horizon. The first step in developing a succession plan is choosing the right strategy.

Strategy 1: Developing a long-term succession plan with an internal successor

Benefits: Continuity for clients and staff, peace of mind that your business will be in good hands

Challenges: Finding the right successor, longer time commitment required

If you are five to 10 years from retirement, and value continuity of your business processes, client support, investment philosophy and staff, developing an internal successor could be the right approach for you.

This strategy involves thoughtfully choosing or hiring a team member who will purchase your practice when you’re ready to let it go. You will need to invest in training and mentoring this team member on the front end, but as you get closer to transitioning out of the business, you will rest easy knowing your clients feel comfortable with your chosen successor.

You may even feel more confident with the future of the business as you build trust with your successor through years of working closely with them. Developing a long-term succession strategy with an internal successor ensures you have a built-in continuity plan to protect the value of your business.

Strategy 2: Merging with another advisor

Benefits: New perspectives, positioned for growth

Challenges: Integration, finding the right business partner

Merging practices is an attractive strategy if you are three to 10 years from retirement and your focus remains on growing your practice. You may enjoy increased value due to new staff members, partnering with advisors with different service models and client strategies, and sharing best practices.

New perspectives and an increase in resources can be a catalyst to grow the merged practice significantly. If and when you plan to retire, you may benefit from a higher sale price if the merged branch has grown. Choosing your partner wisely is critical, since you will likely need to work closely to negotiate a partnership agreement that endures.

Be aware with this strategy that fully integrating your processes and staff into a new merged environment can be time consuming and, potentially, tricky. It’s important to think through this strategy and develop clear responsibilities and expectations of both partners before diving in.

Strategy 3: Selling outright

Benefits: Full liquidity at sale, compressed timeline

Challenges: Potential disruption for clients and staff, higher risk of client attrition

In an outright sale strategy, you choose to sell 100% of the business to another advisor – whether he or she is in your network or unknown. The full liquidity of an outright sale can be attractive, particularly if you know you are ready to leave the business for good to pursue other interests, for health reasons, or to spend time with your family.

With a well thought out deal structure and an attractive payment plan, this exit strategy can be relatively quick. An outright sale also works well for advisors on an accelerated timeline, usually with less than 12 months until they want to sell and retire.

Selling your practice outright can potentially cause disruption among clients and staff, as the change happens more rapidly and less organically than with other strategies. 

There can be higher risk of client attrition with this strategy, which may impact how much a buyer is willing to pay. Therefore, a well thought out plan and transition period are necessary to ensure clients will be comfortable with the new advisor.

As an advisor, you get to choose how to build and grow your practice, and with succession planning, you can choose how and when to exit and sell your practice.

All three strategies can be successful, and succession planning experts at your firm can be great resources as you build and implement your succession plan. The key is to identify the best strategy early in the process and develop a plan to work toward achieving your goal.

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Robert Goff is Vice President of the Succession & Acquisition Consulting Group at Raymond James.