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.