Your Financial Advisor Succession Plan

Your Financial Advisor Business Succession Plan

As a business owner and financial advisor, it’s essential to start planning your retirement and thinking about living a work-optional lifestyle while caring for your clients and family. Your financial advisor business succession plan is critical to leaving a positive legacy.

By Brian Bohnsack, AIF®, Senior Vice President, Financial Advisor, Managing Principal Elk River Office

Brian attained a bachelor’s degree in accounting, earned his FINRA series 7 and 66 securities registrations through LPL Financial, and carries life and health insurance licenses. Brian has a wide range of experience in financial services, accounting, and management. He loves working directly with his clients to help them learn more about their goals and dreams and educate them about financial planning and investing.

Succession Planning for Financial Advisors

For many financial professionals, the thought off handing off your business can seem daunting. You might be thinking that the easiest thing to do is work with a private equity firm. But there are other options.

In this article, I’ll talk cover the basics of succession planning for financial advisors and how you can create a plan that works for you and your clients. 

The Four Key Reasons Succession Planning is Critical

Continuity of Client Relationships: Clients build strong relationships with their financial planners, based on trust, understanding, and shared financial goals. A well-executed succession plan ensures that these relationships remain intact even when the primary planner retires or is no longer able to work.

Business Sustainability: A financial planning practice is not just a job; it’s a business. A succession plan helps maintain the health of the business by transferring leadership and responsibility smoothly. Without a plan, the sudden absence of the planner could lead to confusion, client dissatisfaction, and financial instability.

Protecting the Planner’s Legacy: Financial planners invest years in building their reputation, expertise, and client base. A thoughtful succession plan safeguards this hard-earned legacy by ensuring that the practice’s values, philosophies, and standards continue to guide its future.

Talent Development: Succession planning encourages the professional growth of potential successors. By identifying and nurturing talent within the practice, financial planners contribute to the development of skilled professionals who can carry forward the practice’s mission

The State of Succession Planning Among Financial Advisors

The Average Age of Financial Advisors and the Growing Need for Succession Planning

The average age of financial advisors is steadily increasing, making succession planning more critical than ever. According to a J.D. Power study, the average age of a financial advisor is about 55 years old. Not only that, about one-fifth of industry professionals is 65 or older. 

This demographic reality points to a growing need for younger advisors to step in as older professionals retire. The problem is exacerbated by the lack of formal succession plans in many advisory firms.

Why Most Financial Advisors Lack a Formal Succession Plan

Most financial advisors lack a formal succession plan due to the perceived complexity of the process and a focus on short-term goals. They may feel that their practice will simply sell itself when the time comes or may underestimate the time needed to develop a robust plan. Additionally, some advisors may have difficulty letting go of the business they’ve built. However, lacking a succession plan puts the advisor, clients, and the firm at significant risk.

We don’t want you to be in that boat. 

At 360 Financial, we want to make sure that you’re able to have a smooth transition from working in a profession that you love, to retiring and enjoying the next chapter.

Succession Options for Financial Advisors and Independent Advisory Firms

An Overview of Succession Planning Options for Financial Advisors and Small Firms

Various options exist for financial advisors contemplating succession, including internal succession, selling to an external party, or merging with another firm. Each of these options comes with its own set of complexities and benefits. 

Internal succession is often favored for its continuity, while external sales may offer a quicker exit and potentially higher valuations. Mergers can offer scale and resources but require careful integration.

Succession 360 is your customized plan to protect your life’s work, your clients, your team and family. Leverage your assets today, monetize your business for the future, and choose your timeline rather than be handcuffed to someone else’s.

The ideal succession is about protection, focus, and alignment with your life goals. Let’s discuss the timeline, income and cash flow to meet your financial needs. Then we’ll customize a plan that works best for you, your family, and your clients.

Considering Structure and Dynamics of a Financial Advisory Business with Succession Planning

When planning for succession, the structure and dynamics of your business play an essential role. The size of the firm, the skill set of existing employees, and your client base are all critical considerations. Whether you are a sole practitioner or part of a larger firm, different models will apply. Understanding these variables will help you tailor your succession plan more effectively.

How to Craft an Effective Succession Plan in 7 Steps

1) Identify Potential Successors

 Begin by assessing the individuals within the practice who have the potential to step into leadership roles. Consider their skills, experience, commitment, and alignment with the practice’s values.

2) Consider Mentorship and Training

Once potential successors are identified, provide them with mentorship and training opportunities. This could involve allowing them to take on more responsibilities, participate in decision-making, and learn from the current planner’s experiences.

3) Plan Your Client Transition Strategy

Clients need to be informed about the succession plan well in advance. Introduce potential successors to clients gradually, ensuring that there is time to build trust and rapport. Communication is key; reassure clients that their needs will continue to be met seamlessly.

4) Take Care of Legal and Financial Considerations

Work with legal and other financial advisors to navigate the legalities and financial implications of the succession plan. This might involve updating ownership agreements, drafting buy-sell agreements, and addressing tax considerations.

5) Get Started with a Gradual Transition Period

Plan for a gradual transition period during which the you and the successor work together. This allows the successor to learn the intricacies of your practice, understand client needs, and gain confidence in their new role.

6) Consider Feedback and Do an Evaluation

Regularly assess the progress of the succession plan. Seek feedback from clients, staff members, and the successor themselves. Make adjustments as necessary to ensure the plan’s effectiveness.

7) Have an Emergency Contingency

While succession planning often revolves around planned transitions, it’s equally important to have a contingency plan for unexpected events like disability or sudden retirement. Having a contingency plan ensures that the practice can continue operating without major disruptions.

Schedule a 15-minute call with Mike Rogers, AIF, 360’s Founder & Succession Expert

Key Components of a Financial Advisor Succession Plan

Elements of a Successful Succession Plan

A successful succession plan should include the following:

  • timeline
  • valuation methods
  • client transition strategies
  • legal considerations like buy-sell agreements. 
  • tax implications
  • financing options

Additionally, it should identify potential successors, whether internal or external, and outline a training and development plan for them. 

Finally, it’s crucial to involve stakeholders and communicate effectively throughout the process.

The Role of Business Valuation in Financial Advisor Succession Planning

Business valuation is a critical component of succession planning. It establishes the worth of your practice, which is crucial for setting sale prices and terms. Various methods exist for valuing an advisory business, such as multiples of revenue or EBITDA, and discounted cash flows. 

Valuation is not just a one-time activity; it should be reviewed periodically, especially as you near the time of succession.

Developing an Internal Succession Strategy

The Importance of Internal Succession in Advisory Firms

Internal succession has the advantage of offering continuity for clients and employees. It allows the firm to maintain its culture and operating systems, thereby reducing transitional friction. However, this strategy requires identifying and developing potential successors well in advance. The selected individuals should share the firm’s vision and be capable of running the business efficiently.

Identifying and Developing Next-Generation Advisors

For internal succession to be successful, identifying and developing next-generation advisors is crucial. This involves mentoring, offering career development opportunities, and progressively delegating responsibilities. A systematic approach to this can include setting up training programs, creating a leadership track, and providing incentives for potential successors to stay and grow within the firm.

Buy-Sell Agreements and Business Continuity

How Buy-Sell Agreements Protect Business Owners

Buy-sell agreements serve as a legal framework that outlines the procedure for transferring ownership when a partner exits the business, either due to retirement, disability, or death. These agreements protect the remaining partners by establishing a predetermined price and terms for the buyout, thereby avoiding potential conflicts and ensuring business continuity.

Ensuring Business Continuity Through a Well-Thought-Out Plan

A robust succession plan ensures business continuity by addressing various scenarios and outlining contingency plans. It should include details about who will take over day-to-day operations temporarily if the principal advisor cannot fulfill their role. By addressing these elements in advance, you are protecting the business, its employees, and its clients from undue risks.

Transitioning to the Next Generation or Family Members

Succession Plans Involving Next Generation or Family Members

Transitioning the business to next-generation or family members can be rewarding but requires careful planning. Ensuring that successors have the required skill sets and share the company’s vision is essential. It is also critical to address family dynamics and set boundaries to prevent personal relationships from affecting the business. A phased transition period often helps in acclimatizing the new leaders.

How to Facilitate a Smooth Transition to Family Members in Advisory Business

A smooth transition to family members involves open communication, role definition, and a timeline for the changeover. Clarity around responsibilities and a formal training program can help. Financial advisors should also consider the implications of ownership shares, governance structures, and decision-making processes. 

Expert consultation can be invaluable for navigating family professional complexities.

Speak with a 360 Financial Succession Expert

Have a succession plan that works for you and your clients. Why settle for a private equity sale that doesn’t support your vision or protect your clients? We can help you leverage your assets and monetize your business with a single transition that delivers a win for your clients, employees, and your family.

Schedule a 15-minute Succession Call

Fair Market Value and Outright Sale

Understanding Fair Market Value in Succession Planning

Understanding the fair market value of your practice is crucial for an outright sale. This not only helps in setting realistic expectations but also in negotiating better terms. The valuation can be determined by several factors, including the firm’s assets, client base, revenue streams, and market conditions. Utilizing the services of a professional valuation expert can provide a more accurate estimate.

Considerations for an Outright Sale of the Advisory Firm

An outright sale may seem like a straightforward exit strategy, but it comes with its own set of considerations. These include finding the right buyer who aligns with your business culture and objectives, conducting due diligence, and negotiating sale terms. There may also be regulatory compliance and client transition aspects that need to be managed carefully.

Client Relations and Retention During Transition Period

Communicating the Succession Plan to Clients

Transparency and effective communication are crucial when informing clients about a succession plan. This reassures them and reduces the likelihood of attrition. Regular updates, personal meetings, and a clear transition timeline can go a long way in retaining client trust. Additionally, introducing the successor in advance can help smooth the transition process.

Strategies to Retain Client Base and Attract New Clients During the Transition

Retaining your client base during a transition involves maintaining high service standards and focusing on communication. Strategies may include offering special consultations to discuss changes, providing assurance of continuity in investment strategies, and even leveraging the transition as a marketing opportunity. Encouraging the successor to build relationships with existing clients can also help in attracting new clients.

At 360 Financial, we recently acquired Flemming Investment Group.  Below is a case study that goes over this successful merger.

Case Study: Navigating a Successful Merger for Long-Term Stability

$100M BROKERAGE FIRM CASE STUDY

Background: When Fleming Investment Group, an independent advisor, contemplated merging their sole advisor firm with a larger team, they sought a diverse skill set and essential resources for a successful merger.

Challenges: Their boutique firm lacked dedicated investment, marketing, and client communications departments crucial in our industry. They needed a team that could provide these resources and facilitate a seamless merger.

Valuable Lessons Learned: The merger process highlighted the need for a conversion checklist and on-site technology expertise to avoid potential pitfalls.

Client-Centric Approach: Client communication remained collaborative, focusing on their well-being, along with staff and families.

Long-Term Stability and Succession: The focus was on ensuring moves benefited clients and assured long-term career stability for the team. This included certification, structured investments, and a strong succession plan.

Conclusion: Fleming Investment Group’s case demonstrates the importance of a diverse team, client-centric approach, and long-term planning in achieving a successful merger and ensuring stability for the future.

Elite Support Partners: Superior Transition Service

Dreading the work involved in changing broker dealers? What if a superior transition team came in and did all the heavy lifting for you? Our team is specialized, organized and fast. We expedite timing, open all the accounts and handle all repapering.

$100M AUM BROKERAGE FIRM TRANSFER TO 360 FINANCIAL

The Sprint: 30-45 Day Expectations:

LPL Transitions Team opens all accounts and 360 Financial Transition Staff oversees signatures on all electronic and mailed documents

The Results:

  • 86% accounts opened with 90% account transfers complete within three weeks*
  • Compliments to the team with a <2% NIGO rate

*Statistics based on Flemming Investment Group transfer to 360 Financial in 2022.

Expert Guidance and Support in Succession Planning

Seeking Expert Guidance for a Solid Succession Plan

Succession planning is complex and involves various facets, making expert guidance invaluable. Legal advisors, valuation experts, and even succession planning consultants can provide specialized insight that you might overlook. A multidisciplinary approach ensures that all bases are covered, from legal compliance to fair valuation and effective client transition.

Resources and Support Available to Financial Professionals in Succession Planning

Various resources are available to assist financial advisors in succession planning. These include industry publications, online courses, and consultancy services specialized in succession planning. Professional associations often offer guidelines, templates, and tools to help with drafting a comprehensive succession plan. Peer networks can also provide valuable insights and best practices.

Planning for Your Own Retirement as a Financial Advisor

Integrating Personal Financial Planning into Succession Planning

It’s crucial not to overlook your own retirement planning while focusing on business succession. This involves integrating personal financial goals into the succession planning process. From assessing retirement needs to aligning investment strategies, you must ensure that the sale or transition of the business adequately supports your retirement and lifestyle goals.

Closing the Chapter: Moving into Retirement as a Financial Advisor

Retirement marks a significant life transition and closing your professional chapter should be planned with as much care as you’ve provided your clients. Ensuring a smooth transition not only preserves your professional legacy but also offers you peace of mind as you move to the next phase of life. Taking the time to reflect, celebrate achievements, and set new life goals is essential for a fulfilling retirement.

Your Succession Plan

The Importance of a Comprehensive Financial Advisor Succession Plan

A comprehensive succession plan is not just a safety net for financial advisors; it’s an essential business strategy. It provides a roadmap for your exit, ensuring that your clients continue to receive excellent service and that your legacy endures. 

A well-crafted plan can also increase the value of your firm and provide financial security for your retirement.

How Proper Succession Planning Benefits Clients, Advisors, and the Financial Planning Industry

Proper succession planning is a win-win for all parties involved: clients, advisors, and the broader financial planning industry. Clients are assured continuity in service, advisors can retire with the peace of mind knowing their life’s work is in capable hands, and the industry benefits from a smoother transition of expertise and clientele. 

Succession planning, therefore, is more than a business necessity; it’s a service to your community and industry.

Speak with a 360 Financial Succession Expert

Have a succession plan that works for you and your clients. Why settle for a private equity sale that doesn’t support your vision or protect your clients? We can help you leverage your assets and monetize your business with a single transition that delivers a win for your clients, employees, and your family.

Schedule a 15-minute Succession Call

About the Author: Brian Bohnsack, AIF®

Brian attained a bachelor’s degree in accounting, earned his FINRA series 7 and 66 securities registrations through LPL Financial, and carries life and health insurance licenses.

Brian has a wide range of experience in financial services, accounting, and management. He loves working directly with his clients to help them learn more about their goals and dreams and educate them about financial planning and investing.

Brian is married to Patty and raised three children in St. Michael, Minnesota. He loves activities like boating, snowmobiling, biking, and traveling. Brian is a huge sports fan, participates in volunteer activities regularly, and is actively involved in community organizations.

One of Brian’s goals is to see every Big Ten stadium and the fourteen biggest college football stadiums. To date, he has seen 8 of the 14 of the Big Ten stadiums and 6 of 14 of the football college stadiums

Schedule a 15-minute Call with Brian

Read More:

Learn More about Succession 360

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Online Financial Advisors – Is a Robo-Advisor or Human Advisor Right for You?

Online Financial Advisors: Is a Robo Advisor or Human Advisor Right for You?

Should you be working with an online financial advisor aka. robo advisor? Or do you need the help of a qualified professional and fiduciary? Human vs. robot, let’s dig in.

By Michael Urch, CFP® of 360 Financial, Senior Wealth Manager

As a CERTIFIED FINANCIAL PLANNER,™ Michael advises his clients on insurance planning, investment planning, retirement income planning, tax planning, and estate planning. He prides himself on being a professional advisor who puts planning before products.

 

What Is a Digital Financial Advisor?

Before everyone started meeting in Zoom rooms, the term “online financial advisor” was coined to refer to an online platform that allows you to manage your investments. You’re not actually working with an advisor, you’re doing DIY investing through a platform that simplifies the process.

But is this the best choice?
And what are your other options?

In this article, we’ll go into the pros and cons of both traditional fiduciary financial advisors and online financial advisors.

a traditional financial advisor has a legal obligation to act in your best interest

The Benefit of Financial Advisors Who Work with You Online

Not all financial advisors have pivoted to keep up with the demands of 21st Century investors. But if you can find a financial advisory firm with fiduciary advisors who will work with you online, this may be the best option for you.

Why?

Because when you work with a fiduciary, they have a legal obligation to act in your best interest at all times. A fiduciary can’t sell you packaged investment products with excessive fees, so you can know that you have a customized portfolio for your risk tolerance and goals. 

While a robo-advisor (aka. algorithmic investment management) may provide some benefits and is certainly an improvement upon just keeping your money in your mattress, you won’t get help that’s specific to your needs and goals. You also won’t have anyone to talk you off the ledge when you go to sell all your investments when the market takes a turn for the worse.

For some people with nerves of steel who are in the very early years of investing a robo-advisor may be a good fit. But for anyone who wants guidance and is moving closer to their retirement date, working with an experienced professional who can meet online via Zoom is certainly preferable.

 

Should You Work with a Financial Advisor Online?

It used to be that you had to work with a financial advisor in your local area. But that’s no longer the case. At 360 Financial, we work with clients all across the US as well as within our home state of Minnesota. We’re able to give our clients full-service wealth management that rivals the big investment firms no matter where they live. If you’re an American who lives abroad for some of the year, this might be even more critical to you.

Digital nomads often earn well but don’t have their investments managed effectively.

Likewise, entrepreneurs and business owners often have all or most of their wealth tied up in their businesses. This can be risky. It’s important to have your assets diversified because then you don’t have to spend sleepless nights worrying about whether everything you’ve built might disappear with one bad move.

What Is a Robo-Advisor?

A Robo-Advisor relies on algorithms to help individuals manage their investments. The scope of advice provided is generally limited to investment advice. Many rely on their own proprietary tools to help customers rebalance their portfolios, tax loss harvest and automate other investing decisions.

What Is a Fiduciary Financial Planner?

A Fiduciary financial advisor is an advisor that has a legal obligation to make recommendations that are in the best interest of their clients. CERTIFIED FINANCIAL PLANNER™ professionals are held to this fiduciary standard in all of the recommendations that they make, not just in regard to investment decisions, but also in all other addressed during the financial planning process.

 

What Are the Best Digital Financial Advisors?

Betterment is one of the best known digital financial advisors. Bloom Retirement Alternative is another popular option, and Vanguard also has a robo advisor offering. All of these Robo Advisors help individuals to manage their investment portfolio.

a robo advisor relies on algorithms

 

5 Benefits of Working with a Financial Advisor Rather than a Robo-Advisor

1. Traditional Financial Advisors Help with Tax Planning and Estate Planning

Have a CFP® professional review your tax return for tax planning, assess whether your savings rate will help you accomplish your retirement goal, and help guide you through a conversation about your legacy planning. This is something your robo-advisor can’t do for you. And it’s just part of the reason why for anyone with substantial assets, a complex tax situation, or who plans on growing their wealth, a robo-advisor might not be the best fit.

2. Financial Advisors Prevent You from Making Massive Investment Errors

A financial advisor provides an extra barrier between you and your investment decisions. Rather than allowing our clients to quickly buy-and-sell their investments based on what they are thinking or feeling at any given moment, we provide due process. Each client gets an investment policy statement and our advisors meet as an investment committee every two weeks to review our portfolios. We do not make hasty decisions, and we stay committed to a disciplined process. This prevents clients from making catastrophic investment decisions that could affect their net worth for years to come.

3. Financial Advisors Know What Is Important to You

Everyone has their own priorities, preferences and goals in life. A good advisor is going to spend time understanding what is really important to you. Then they will create a plan that will make progress toward your goals. An algorithm can only go so far, and it does not deliver customized advice.

4. A Robo-Advisor Is No Match for a CERTIFIED FINANCIAL PLANNER™ Professional 

A certified financial planner helps in all of the realms of financial planning. Investments are only one element of a financial plan. Working with a CFP® professional will help you to view your entire financial picture and provide recommendations for far more than investments, which also often leads to a more successful investing experience.

5. The Cost of an Advisor Is Often Offset

A good financial advisor will provide their clients with multiples of their fee in value. In other words, the cost of working with a good financial advisor is worth it. But why? A financial advisor who is great at what they do will coach clients in wealth building strategies, show clients how well they are moving toward their goals, and stand between clients and bad investment decisions. They will be there for you at every important financial milestone ensuring that you make the best possible financial and wealth-building decisions.

advisor question and answer

Common Questions about Financial Advisors and Planners

Is it worth paying for a financial advisor?

Yes, especially if you do not have the time or temperament to successfully invest and create a financial plan on your own.

How much money do you need to talk to a financial advisor?

Generally, I recommend talking with a financial advisor after your net worth is more than $500,000.

Is it smart to invest with a financial advisor?

Yes, especially if you do not have the time or temperament to successfully invest on your own.

What is the difference between a financial advisor and a financial planner?

A financial planner is going to focus on all the areas of financial planning, where some financial advisors are focused on investment management. Titles are not standardized across the industry, so sometimes it can be difficult to tell whether someone is really able to offer financial planning. As a good rule of thumb, if you are working with a CFP® professional they are able to provide financial planning for you.

What is the difference between a financial advisor and an investment advisor?

An investment advisor or a registered investment advisor is not an individual. An RIA is an entity (or a company) that provides investment advice per the 1940 Investment Company Act. RIAs are held to a fiduciary standard. Many financial advisors are investment advisor representatives. 360 Financial is an RIA and I am a wealth manager, a CFP® professional and an investment advisor representative. I am held to a fiduciary standard both as an investment advisor representative and a CFP® professional.

How do I find a legitimate financial advisor?

I recommend working with a CFP® professional who works at an RIA. You can research at Adviser Info for information on financial advisors or registered investment advisors.

What is the average cost of a financial advisor?

Each advisor has their own fee structure. It is fairly common for advisors to charge a fee based on the investments that they are managing for you. The industry average tends to be between 1 and 1.5%. Some firms charge an additional fee for financial planning services, and some firms include financial planning in the single asset under management fee.

Are robo-advisors good for beginners?

If you are in the early years of wealth accumulation, a robo advisor can be a great place to gain some investment experience. Once you are above $500,000 in net worth, you likely would benefit more from a stronger offering.

How much is a personal financial planner fee?

Financial planners can charge hourly, on a project basis, a monthly retainer, or include planning as part of their asset under management fee. If you are paying for a stand-alone financial plan, it is not uncommon to see a charge of $3,000 – $10,000 (depending on the complexity of your situation).

Are financial planner fees worth it?

If you are in need of a financial planner, can you really afford not to work with one? In some cases, I have seen clients come out ahead financially after working with a financial planner, and I always see someone have increased confidence after having a professional create a financial plan for them.

Work with a Financial Advisor Online or In Person

If you need a wealth management team to help you achieve your big-picture goals, we recommend scheduling a call with a financial advisor at 360 Financial.

360 Financial is one of Minnesota’s best independent wealth management firms. We work with clients in Minnesota and across the US. If you’d like to work with a team that always puts your best interests first and is committed to helping you create a lasting legacy, please get in touch. 

Schedule a 15-minute Call

Read More:

How to Choose a Good Financial Advisor

About the Author: Michael Urch

Michael Urch Senior Wealth Manager and CFP

As a CERTIFIED FINANCIAL PLANNER,™ Michael advises his clients on insurance planning, investment planning, retirement income planning, tax planning, and estate planning. He prides himself on being a professional advisor who puts planning before products. This is one of the reasons he was attracted to 360 Financial’s client-focused culture. Michael likes to start with each client’s “why.” By understanding what’s truly important to them, the “what” of investment and planning strategies can be custom designed to support their long-term ambitions.

Prior to joining 360, he spent nine years honing his skills first at a Fortune 100 Financial Services Company and then at independent, planning-centric firms. He graduated magna cum laude from Bethel University with a BA in economics and finance, as well as a minor in mathematics.

Michael lives in Golden Valley, Minnesota with his wife, Bri and their three children. When he is not working, he enjoys exploring parks and reading books as a family, hiking, and playing guitar.

Schedule a 15-minute Call with Michael

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.