5 Keys to Succession Planning Success for Advisors

As a financial advisor, you help investors prepare for their future with exceptional care and skillful expertise — and preparing for your own future deserves that same level of dedication. That’s why developing a written succession plan is critical to effective business planning.

Whether you’re just beginning to evaluate succession planning for your financial practice, or it’s time to review and update your existing plan, following these steps can help ensure a less disruptive and more successful transfer of ownership.

Don’t wait — start succession planning today

A 2023 J.D. Power study found that the average age of U.S. financial advisors is 56 and that 20% of those surveyed indicate that they are five years or less away from retirement.¹ If your retirement is farther on the horizon, you may think that succession planning can wait. But succession planning isn’t just for retirement — it’s a critical business planning strategy that can help protect your practice, your clients, and your loved ones in the event of a sudden change or crisis. And by starting now you gain valuable time to discover untapped potential for long-term growth and opportunities to monetize your business.

A comprehensive succession plan should outline the steps required to transfer ownership, responsibilities, and client relationships to the next generation of advisors. It should also include a timeline, communication plan, and details on compensation and benefits.

Remember, even the best laid plans are subject to change. Adopt the practice of reviewing and updating your written succession plan with key stakeholders on a regular basis to ensure it stays accurate and effective. 

Identify a successor

For advisors like you, your business is often an extension of your family. You’ve built strong relationships with your clients and staff and want to ensure they’ll be in the best possible hands. 

This is another reason why early succession planning is crucial for financial advisors — it gives you time to either select and mentor an internal successor or look for outside candidates. Regardless of the approach you take, look for a succession candidate with these key qualities: 

• Good fit with your practice’s values and culture
• Alignment with your practice’s service model and investment philosophy
• Relationship management skills
• Strong work ethic
• Leadership skills 

Build value in the practice

The succession planning process also presents an opportunity to evaluate your business holistically and identify opportunities to build its value. To make your practice as appealing as possible to potential buyers, it’s important to demonstrate sustainable growth, efficiency, and strong client and staff relationships.

Asking yourself the following questions can help highlight your practice’s strengths and pinpoint areas to address. 

• What percentage of your current business mix generates recurring revenue (fees, trails, 12-b1s, renewals, financial planning)? 
• What adjustments can you make to increase your profitability?
• How can you better leverage technology to improve your efficiency?
• What are your client growth and retention rates?
• Is your practice fiscally responsible? Do you make and follow budgets to track spending and keep costs within projected limits?
• How strong is your brand? 

You may also want to explore mergers and acquisitions as a way to provide a liquidity event and help to build value in your business. 

Foster client relationships and evaluate employee retention 

As a financial advisor, you’ve become interwoven with the stories and families of your clients over time and can count the milestones you’ve crossed together along the way. Honoring the legacy of these relationships by preserving service continuity and open communication in the midst of change should be a top priority. 

Proactive, consistent communication is key to a smooth ownership transition. Remember, it took you time to build these relationships, and it will take time for your successor as well. If possible, introduce them well in advance of your departure to give all parties time to adjust and get better acquainted. Consider conducting joint meetings, then gradually stepping back into more of a consultative role while your successor takes on more responsibilities. 

Employee retention is also important for the success of the business after the transition. Staff play a vital role in building and maintaining clients’ trust and overall degree of satisfaction with your practice. In many cases, they are an extension of you, the values you hold, and the service you deliver. Keep them in the loop as early as possible, address their questions quickly, and provide as much clarity as possible about key processes and responsibilities. You might also consider offering key employees retention incentives, such as equity stakes in the company. 

Plan for retirement

Lastly, consider your personal retirement plans. How will you prepare mentally and financially for this milestone? As you think about your ideal retirement, ask questions that get to the heart of your “why” to help you prioritize what’s most important and set reasonable expectations. 

Having a clear understanding of your goals will help you craft an effective money management strategy that includes a realistic retirement budget, short-term cash reserves, and an appropriate blend of conservative and growth-focused investments to draw from. 

How LPL Financial can help

Whether you’re seeking succession planning guidance or considering a liquidity event, LPL can help you reach the next evolution of your business. Our team of specialists can work with you on crafting your succession plan or exploring what a sale of your business to LPL can mean for you, your clients, and your employees.

1 “Time-Starved U.S. Financial Advisors Considering Alternative Options.” J.D. Power, 2023. April