Commonwealth Independent Advisor

Retirement and Succession Planning for Advisors: Don't Skip These 10 Steps

Posted by Maria Considine King

May 13, 2014 at 10:00 AM

succession planning for advisorsSuccession planning for advisors requires two types of preparation: personal and logistical.

Preparing yourself emotionally for letting go of your business can be difficult, perhaps the most difficult part of the entire process. Many advisors anxiously wonder, "What will happen to the business once I leave?" It's natural to have concerns and apprehensions, but they shouldn't stop you from beginning your retirement and succession planning.

Take the time to prepare yourself personally. This way, you'll likely know when it's time to let go, be able to hand over the keys comfortably, and enjoy the next chapter of your life. To help you start off on the right foot, here are 10 important steps to consider:

Step 1: Envision Your Retirement

Spend some time dreaming about your ideal retirement—just like you do with your own clients. For many advisors, realizing their next goals gives them a compelling reason to retire, and they often find that the willingness to give up control soon follows.

To begin, articulate your ambitions for your retirement years. You may want to:

  • Enjoy yourself while you're still in great health
  • Start a new business
  • Explore a different climate, geography, or culture
  • Pursue a passion, sport, or hobby
  • Spend more time with loved ones

Step 2: Let Go of Your Ego

You don't have to be a multimillion-dollar producer for your identity to be wrapped up in your practice, but this is a major roadblock in succession planning for advisors. Take a step back and view your practice as you would any other business. Focus on the satisfaction and sense of accomplishment that will come with passing on your firm's legacy or hearing how happy your former clients are with the new advisor. Who knows? It might even surpass the satisfaction you currently feel in running the day-to-day operations of the business.

Step 3: Don't Look for an Exact Replica of Yourself

Here at Commonwealth, the Practice Management team and I often hear advisors say, "I would retire if only I could find someone like myself to take over my practice." This search is futile. No one is exactly like you. Instead, determine which qualities are most important to you—and search for a successor whose major characteristics fit the bill. If you need some guidance, we developed a checklist to help financial advisors like you find and prepare the ideal successor.

Step 4: Get Feedback from Your A+ Clients

The reasons that you think your best clients have been with you for so long may not be correct. You may believe that they value your investment performance above all else, but, in reality, they consider your commitment to service and accessibility indispensable. Find out, preferably early on in the process, what your clients appreciate most about you and you'll be better positioned to choose the right successor.

Step 5: Seek Out Sound Advice

To avoid common succession pitfalls, it's critical to align yourself with sources of independent, objective advice. Assemble a team of accountants, legal experts, and other strategic alliances who have experience with business transitions.

Step 6: Assess Your Finances

You likely frequently calm clients' fears about having enough money to retire. Now that you're in their shoes, you may be just as anxious. Instead of worrying, use the same analytic process that you do with your clients to calculate how far your nest egg will go.

You may even find that you can't afford not to retire. Our constantly changing industry requires an intense commitment from advisors. It can be riskier to shift to a part-time or semi-retired role in an advisory practice, as you may lose enterprise value in the process. Putting your practice in the hands of an energetic and focused buyer may provide more economic value to you in the long run.

Step 7: Engage Stakeholders in the Process

Succession planning for financial advisors requires input and suggestions from all stakeholders. Be sure to include your employees and partners in your plans. With their feedback and collaboration, you're more likely to make smart planning decisions—and enjoy a more successful transition overall.

Step 8: Set Milestones

To achieve your goal of retirement, set several milestones for yourself. These may include discussing specific issues with your successor, deciding your retirement date, or developing a spending plan for your first years in retirement. Having a well-defined plan will help you stay focused on moving forward, step by step.

Step 9: Give Yourself Enough Time

It's wise to begin succession planning three to five years before you want to retire. Succession is a transition, so don't feel that it needs to happen all at once. It's important not to rush the personal preparations for your retirement.

Step 10: Begin Organizing Your Business

Next, it's time to tackle the logistical side of retirement and succession planning. Begin by organizing your business's important documents and determining the best form of succession for you. Stay tuned here for information and tips to help you every step of the way.

Preparing yourself is the most personal part of the retirement process. The logistics—preparing your business, successor, and clients, as well as executing the deal itself—are often less difficult for many advisors. Unless you take the time to properly prepare yourself, however, you may never reach those later steps.

What are your thoughts about preparing personally for retirement? Have you begun succession planning? Share below!

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Topics: Practice Management, Succession

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