The Financial Advisor’s Ultimate Cheat Sheet to Succession Planning

How to grow your book and business in a shifting landscape

This is part 3 of our three-part series on how to grow your book and business in a shifting landscape. For part 1 about the three client trends that have transformed the financial advisory industry, click here. For part 2 about the three keys to selling to millennials, click here.

In this final article about the shifting landscape, we want to discuss advisor retirement. Two years ago, Cerulli Associates reported that the average age of a financial advisor was almost 51-years-old. Only 11% were under the age of 35, while 43% were over 55 years old and 20% were over the age of 60. Okay, so if that was 2014, let’s expect that the average age has actually gone up to 53-years-old by now. Now, people grow older and they retire, that’s not a big deal. Boomers retiring, while an important demographic shift, is also to be expected. What isn’t expected, what is an enormous problem, is that the grand majority of advisors do not have a succession plan. In fact, according to Accenture, only 29% of advisors have a succession plan in place. Now, if you’re 35-years-old, maybe you don’t need a succession plan yet. But it turns out that this problem isn’t facing just 35-year-old financial advisors. In fact, 59% of advisors planning to retire within five years have no idea who will buy their books and even advisors who don’t plan to retire by 65 intend to offload 60% of their clients by that age. This is a problem.

It is interesting to note that the prevailing thinking of advisors is “I’ll sell when I’m ready.” There is an expectation to be out quickly. The truth is that most buyers who can afford a good book have choice too, and because the book they choose affects the market they operate in, they also have to invest time and money. Realistically, succession planning is a year long courtship and due diligence process. Moreover, multi-year transitional earn-outs are very common. There’s no cutting and running here – if you sell your book, be prepared for a long transitional period to get your money. Plus, let’s not forget that many of you will be bumping into former clients at the grocery store – the last thing you want is to chuck them away to an advisor who doesn’t care. Therefore, the mentality that advisors can just walk away with a fat cheque is far from reality.

Ultimately, then, if you are an advisor and do not have a succession plan in place, you need to begin working on one today. And if you’re an advisor over 55 without one built, what are you waiting for? That being said, we can empathize with how complex of a process succession planning is. To help, we interviewed a dozen advisors who have already successfully navigated the hurdles behind proper succession planning. Their ages were between 50 and 63, and we wanted to hear their stories. More importantly, we wanted to arm you with their expertise. What were their best practices? What did they focus on when building out a succession plan?

In the end, we found three key themes worth discussing. The first revolved around a proper successor being similar to the advisor in more ways than one. The second theme was the value of training a younger advisor to take over your book. The final theme was that knowledge had to be organized in an accessible fashion: relationships could not just live in your mind.

Similarity is key

Similarity between financial advisors is importantThe first central theme from advisors with succession plans was that it was more than just about money. Yes, getting a strong value for your book was important, but “you [had] to find the right suitor,” as one advisor put it. This is because a big part of the book’s value is in transitioning your customers. A bad transition can destroy a book that took a lifetime to build. This isn’t right to your clients who rely on you to find a great replacement. Plus, don’t forget that many succession plans pay off over a number of years based on successful value milestones. This means if a transition goes poorly, you could watch your retirement fund disappear – so much for golfing in Phoenix.  

So who is the right suitor? We asked our advisors an open question on what they looked for in a successor. There were a wide range of responses, but we aggregated a few key themes that came up from multiple advisors:

The majority of interviewed advisors believed that the right successor was a person who shared their philosophies in investment practices and in customer service. If your clients are used to high touch points and a low-risk approach, it would be a disaster to transition them to someone who prefers few touch points and higher risk. Many advisors also believed that their replacement needs to be comfortable with your book’s client demographic. If you’re dealing primarily with senior high net worth clients, you don’t want someone whose only experience is with younger middle class couples. If you deal particularly with small businesses, you don’t want someone who has only serviced individuals or corporations. An offshoot of this is your advisor should be comfortable with the size of deals being offered. A few advisors preferred someone with a similar working style to them, but the majority didn’t mind different differences here.

Ultimately, you’re trying to avoid any disruption to your clients. In the twelve interviews, we only heard one horror story. An advisor started working with a potential successor only to realize that he was totally wrong for the job. To quote him:

“Where I zigged, he zagged. My focus was on small group insurance packages – it let me build a fence around potential clients and sell them individual insurance. It was a very light touch approach. But he was much more interested in selling investment packages and my clients were taken aback by his more aggressive nature.”

Luckily, they had agreed to work together for a few months before beginning the sale just to test a transition. After a few client complaints, our interviewed advisor very quickly severed the relationship. As he stated, his successor “wasn’t a bad advisor, he was just bad for [his] clients.”

This leads to the last point worth making here: take your time. Work closely with someone first as a test run before handing over the keys to the kingdom. And if it isn’t working, pull back. There’s no reason to destroy your book’s value for a quick sale that will end up generating a longer term lose-lose situation for both you and your replacement.

Training younger advisors can make the transition clean

This is an optional methodology that is hugely valuable for advisors starting to think about succession. If you are any good at managing juniors, recruiting a younger associate with promise of transition could help create a built-in succession plan. After all, if you are teaching a junior advisor how to run a book, you can be assured that they will have similar philosophies and expertise to yourself. Moreover, it makes the transition clean. The brand stays intact and you can begin building relationships between your junior and your clients from early days. The key is that instead of thinking of your business as an advisor-client model, you must begin branding towards a client-team model. When you’re ready to leave, it’s not the entire relationship vanishing, it’s just one member of the team. Likewise, it allows you to transition out blocks of clients over time, as your trust in the junior increases and your desire for a heavier workload decreases.

This strategy, of course, has its own problems. For one, you must be talented at managing, mentoring, and growing young talent. This is a multi-year process that requires a large book to support. Likewise, you have to understand younger advisors. Generational differences in how and where they work, what tools they use, and how they interact with clients should be appreciated, not snuffed out. These are differences in style, not substance. On top of that, you’re paying them and they will likely not be a profit-center for your business. In other words, you are investing upfront for a better transition with more favorable terms.

So how do you go about training a new advisor? Well, it isn’t easy. According to Sarah Chandler, writing for Investopedia, the success rate for larger brokerage firms to create a profitable financial advisor is around 30%. Now, if you’re looking to retire, this may be less relevant to you. You’re not trying to hire a junior to build a new book of business, but to take over yours. This means the focus is different. You’re not spending time training your replacement to prospect and cold call. You’re not even training your junior to build an independently profitable book of business. Instead you’re focusing on having your junior shadow you, learn about your clients, and understand how to maintain those relationships. Over time, your junior will be able to take this skillset and grow her own book of business, but, early on, her job is to make your current clients love and want to work with her.

Returning to Chandler, she points out that proper training is expected to take two years at Raymond James Financial. This should be highlighted – when you are thinking about training your replacement, you need to give yourself enough time to do so. Do not expect a fast turnaround. Expect that it will take a lot of investment, both in time and dollars, to get a junior up to speed.

On the plus side, by transitioning a junior in a transparent way with full client knowledge, you are much more likely to succeed in maintaining your book even after you decide to leave. The value of this cannot be underplayed. For a junior advisor, you are handing them a great opportunity to learn and maintain a productive book with full client agreement. As a retiring advisor, you are able to create an earn-out or revenue-sharing structure that will generate cash flow for many years past retirement. The terms you can request from a junior you are training will be far superior to any deal offered to you from an already experienced advisor.

Client information cannot just live in your mind

Probably one of the most consistent pieces of feedback we received from interviewed advisors was that your client information could not just live in your mind. This was agreed upon across the board. Transitioning a book means transitioning your relationships, and it’s almost impossible to do this well if you have no information on the client. Imagine trying to buy a block of clients from an advisor who provided you with the bare minimum of details on each client – it would be basically worthless. An overly expensive prospect list.

What you need is enough longitudinal information about the client so that any advisor who reads the file can get up to speed fast. A chronicling of the last few meetings is worth its weight in gold. This would include follow-up meeting summaries, client preferences, topics of discussion, product history, and up-to-date compliance files. The difference between a well managed book and a disorganized one is paramount in value. Some advisors discussed the challenge of having to sit down and begin transforming loose notes, historical records, and a lot of personal knowledge into an organized client docket. For those doing it the first time, the process was miserable. But all advisors we interviewed believed that organized client information was the difference between receiving a multiple of revenue and not finding a buyer at all. Luckily, unless you’re retiring tomorrow, you still have time to start organizing this information. A successor doesn’t need a decade of data. A few years, starting today, will be enough for a purchasing advisor to understand your clientele. And if you’re even further away from retirement, all advisors agreed that now was the right time to start building the organizational habits you’ll need.


So our weekly challenger: have you started your succession planning? If you haven’t, why not? What are the roadblocks stopping you from doing so or have you just not thought about it much? We challenge you to get started this weekend. Start small – put together all of the steps you need to get everything ready. Then think about what processes you will need to incorporate into your business moving forward to keep your book highly valuable to a successor. Then let us know how it went in the comments!