Keys to Successful Succession Planning for RIAs

Posted by Amos Fred on February 7th, 2020

It’s never too early or late to start preparing a formal succession plan. You definitely want to make sure that after you leave, your employees are in a good place for success and your clients are in good hands. Consider these keys to successful planning for RIAs.

Timing

It’s crucial to start by taking some time to think about your retirement goals. First, consider when you want to retire. While some advisors really enjoy their jobs and want to remain actively involved well into their 70s, others lose energy as they approach retirement age and simply want to retire then. If you have goals you still want to achieve and want to stay active past the age of 65, that’s perfectly fine, but you should have a good idea of when you want to achieve those goals, in order to develop your succession plan.

You should also consider the age of your clients. Most RIAs have a good number of elderly clients, and if elderly clients represent a good portion of your total assets, you should take into consideration how intergenerational wealth transfers could affect your business.

Who Will Take Over Your RIA?
You should also think about who you want taking over your RIA after you retire? Do you want to pass it onto someone within your firm, or would you like to sell it or merge with another RIA. If you are planning on selling, you need to think about whether you want to make an internal or external sale.

Internal Sale

Most advisors have an internal successor take over their RIA. This could be an existing business partner, family member or younger advisor. A business partner could be a good option if they are willing and able to buy you out and continue running the firm and are not near retirement themselves.

If you have a younger family member who knows the business and is already involved with the firm, passing ownership to this family member can help preserve your firm’s culture and make it easier to retain longtime clients. If you are considering passing the firm onto a younger employee, make sure you identify this person at least a few years before you retire, so that you have time to mentor and train them as your eventual replacement.

It’s important to start the search immediately if you plan to sell internally but have not yet identified a successor. Mentoring and training your successor could take years, but it is crucial that you find the right person for the job.

External Sale

You could also sell your RIA or merge with another RIA. Selling to a third-party can offer some great financial benefits to you and your family and provide your clients and your employees with some additional resources and opportunities.