Succession planning for financial advisors: The definitive guide

In the next decade, 37% of financial advisors plan to retire. While this is an exciting milestone that many look forward to, it can also produce a fair amount of anxiety for advisors. Whether you’re a business owner or simply want to ensure your portfolio of business goes to good hands, it’s important to have a solid succession plan as you approach retirement. Your clients will be reassured to know that they’ll remain in good hands even after you’re gone, and it will give your employees and colleagues added confidence as well. As an added benefit, having a roadmap for who will take over for you (and when) will reduce some of that anxiety that comes with the thought of leaving it all behind.

What is succession planning for financial advisors?

Succession planning is an intentional strategy for how you will transition out of your business and who will take over in your stead. It is a natural part of the retirement planning process for any business owner a common goal for a financial advisor. 

When developing a financial advisor succession plan, you should consider the timing, process, and anticipate challenges. The ultimate goal will be a buy-sell agreement that all parties agree to.

Benefits of succession planning for financial services

A quarter of advisors are unsure of their succession plans. But you owe it to your staff, clients, and yourself to develop a financial advisor succession plan. There are numerous advantages to creating a succession plan:

  • Give your clients a sense of security. They know that business will successfully continue after your retirement, and they will not need to find a new financial advisor firm. 
  • Show employees a future in your firm. With a clear vision of the future, your advisors and employees will be more invested in your business. 
  • Create the opportunity to align your company’s goals, organize your management structure, and address weaknesses for the future. Even though a succession plan is for the future, it can immediately impact your company. 

Hopefully, you’ve emphasized the importance of estate planning to your clients – preparing for a smooth transition of wealth over future generations. Similarly, succession planning provides continuity for your firm. When you grant yourself the time to plan for succession, you gain more options to develop the right succession plan for your business. 

Choosing a successor for your wealth management firm

You have options for your financial advisor succession plan. Try to avoid getting too fixed on a specific person, but rather narrow down the characteristics needed for succession. 

Traits to consider for a successor

When it comes to succession planning, few considerations are more important than culture. Most advisors (88%) believe that personality is the most important quality of a potential successor. Because culture fit – with both clients and staff – makes all the difference when creating a financial advisor succession plan. Your staff and clients want continuity because it makes them feel safe. So it’s best if your successor fits in and is planning to stick around.

This doesn’t necessarily mean that you need an internal successor. It needs to be a candidate with a CEO mindset that understands your firm and how to grow it. Great financial advisors don’t always make good business leaders.

Finally, decide how purchase price factors into your must-have list. You spent a lot of time building your business, and it’s a valuable asset. Your ideal successor may not be able to pay top dollar, but they may better align with your values and culture. 

Possible successors for your financial advisor business

Typically financial advisors have three types of successors to choose from. There are pros and cons to each: 

Internal successors

Internal hires are often frontrunners because they already know your clients and understand the firm’s culture. If you run a solo operation, you can hire an internal successor with the goal of growing them to the successor role as well.

But the internal successor’s biggest struggle is their ability to afford the purchase price of the wealth management firm. We will dive into ways to structure the deal so they can afford it below. 

Local advisor

You can also consider selling your company to a local advisor. Though they may not understand your particular firm’s culture like an insider, they would understand the local demographics. Local advisors can afford your firm by securing a loan through their existing practice.

The downside is that a local competitor will not be an exact fit for your firm’s different systems, styles, and software. 

Use a broker

Brokers can do the heavy lifting by finding a successor and managing the transition. You will have little control, and there can be client turnover if there are too many bumps. But this is a fast option that gets you paid. 

Valuation of your financial advisor business

A big piece of succession planning is understanding what your advisory firm is worth, and it helps you to become a better negotiator. This gives you an idea of a potential successor’s price and time to improve your firm’s value. 

Many prospective buyers will look at EBITDA because it shows profitability after expenses. Because of this, get your revenue up and expenses down.

From there, most buyers will calculate their own valuation. They may examine more nuanced details like:

  • Total AUM (assets under management)
  • Average number of households in AUM
  • Average client age
  • Average growth of revenue and expenses
  • Types of services and products offered
  • Fee structure (fee, commission, etc.)
  • Amount of clients that have exclusivity agreements and how long they last

One of the most immediate benefits of succession planning for financial planners is organizing your firm’s financial situation and figuring out ways to improve your bottom line. 

Determine internal ownership before the deal happens

If you’re the only owner of your financial advisory firm, then selling is easier. You get all the proceeds from the sale. But selling has more complications when you have multiple owners. It is often easier and more profitable to sell your firm as one whole with a single book of business. But restructuring ownership is time-consuming and delicate – no advisory firm has equal revenue from individual advisors. 

Consider shifting from a solo model to shared equity ownership if you have multiple owners

Many financial advisors do not have central ownership. They silo their ownership and have separate books of business for each owner or advisor. This is less attractive to buyers because they know individual advisors will have separate relationships and operating procedures. 

Instead, consider an equity-based model with central ownership. Each advisor receives a fair wage with a portion of ownership. It’s important to keep salaries the same or better to retain talent. 

Educate stakeholders of the big picture: equity ownership allows for a bigger sale in the future. It gives the entire firm more leverage with a larger bottom line. A better bottom line will attract better buyers.

In the meantime, restructuring to equity ownership creates a more centralized financial advisory firm. It establishes fair and predictable growth as an entire company helps to achieve goals. 

Structure a deal

You should get a fair price for your business with your financial advisor succession plan. Part of good negotiating is structuring a deal that works for all parties. 

Here’s an example: you have a person in mind internally that understands the culture and clients of the organization. He/ she is the perfect fit, but they cannot afford to pay your asking price upfront. You can create a deal where they pay 10% a year for a decade. 

There are a few ways you can get creative to reach a compromise while still getting a fair market price for your wealth management firm:

  • Installments: Like the example above, you can ask the buyer to pay you over time. 
  • Floating scale: You can build a clause into your deal that states if revenue dips during a set amount of time, the buyer can have a discount on their payments. You can also structure the clause for the price to go up if the firm increases in revenue during this time. 
  • Financing: You may want to discount an internal successor, but consider giving them a deal on financing instead. This way, you can get a fair price for your business, but you’re still helping the internal successor. 

Vanilla guides financial advisors when it matters most

You’re always encouraging your clients to plan earlier for retirement. Take your own advice – start today, and have an end in mind. Your succession planning is a part of your estate planning checklist as a financial advisor.  Vanilla empowers financial advisors with tools to visualize the complexities of estate planning


FAQ: Succession planning for financial advisors

What should be included in a succession plan?

You should include the following components in your succession plan:

  • Key leadership position and qualities
  • Potential successors
  • Training programs for successors
  • Succession timeline and guidelines
  • Buy-sell agreement

What is succession planning in financial services? 

Succession planning is a planned transition out of your financial advisory firm. It is a natural retirement or career change process for wealth management advisors. When developing a financial advisor succession plan, you must consider the timing, process, and anticipate challenges.


The information provided here does not, and is not intended to, constitute legal advice or tax advice; it is provided for general informational purposes only. This information may not be updated or reflect changes in law. Please consult with your financial advisor or estate attorney who can advise as to whether the information contained herein is applicable or appropriate to your particular situation.

Ready to get started?

Deliver a whole new client conversation experience

Talk to our sales team today.