The first generation of independent advisors now faces retirement. Throughout their careers, these professionals built businesses on a foundation of sound planning and financial advice for their clients. But just like doctors who drink whiskey and eat red meat, financial advisors often struggle to follow their own advice.
That’s bad news for them, as firms looking to scale will be able to capitalize on this situation.
Financial advisors often experience a 40%-plus decline in valuation when they sell their businesses without a clear succession plan, and more than a quarter of advisors who expect to exit the business in the next decade do not have a plan in place, according to industry research. These facts are great news for consolidators of any size.
Bluntly, if you’re an advisor without a well-constructed exit plan, firms are going to buy your life’s work for cheap. And that’s all on you.
But this approach will hurt the industry more than aggregators expect. The most important aspect of an advisor’s business isn’t their assets under management but the relationships they build with clients—and taking advantage of poor planning isn’t a good way to preserve that value.
Life coaches often tell clients, “Change before you have to.”
I’m here to tell advisors to sell their business before they have to. Take action now to maximize your firm’s value and maintain as much control of the process as possible.
But too many still don’t want to do it.
Make it Easy
Beyond the obvious reasons of advisors not facing their own mortality and the very real issue of ego leading advisors to believe they are uniquely qualified to support their clients, there are other, less personal matters impeding the development of clear plans to help an advisor optimally transition out of the business.
First of all, it’s a lot of work.
When advisors consider conducting the business of doing business, a daily schedule of client meetings, compliance reviews, technology needs and more, putting aside significant time to plan for something that seems very far off will always take a back seat. For advisors whose primary responsibility and revenue driver is well-served clients, deciding to work on the business—versus in the business—can be difficult.
The daily operations of a firm can be all-encompassing and time-consuming.
Not to mention, planning a succession is hard. Identifying what matters to an advisor as a business owner and service provider can be complex. Questions of family ownership and legacy don’t lend themselves to quick afternoon conversation. These foundational concepts must be clearly defined to build a plan that supports an advisor’s objectives.
The Right Help
There is no easy button in succession planning. Every part can be the hardest part—it’s a major reason so few advisors have an actionable plan in place.
Working with the right people will make this difficult process feel manageable, and the more time an advisor has before retirement, the easier it will seem. Once again, advisors need to take their own advice and start planning with an expert early in their careers. With specialists supporting your plan, you can focus on building something that will outlast you, provide you with the most monetary value or whatever else you deem most important.
However, no consultant or outside expert can or should tell an advisor what matters most to them.
Being Honest
Independent advisors have the luxury of building their businesses in their own image. And they should do the same with their succession planning.
Creating a succession plan that reflects your desires requires radical honesty and deep introspection. It will be impossible to draft the next chapter in your life without understanding what matters most to you. This can be difficult to identify and may change over time.
Which is fine.
Priorities shift, but values rarely do. If you understand what is most important to you as an advisor and business owner, making plans will be easier. The sooner you sit down with your key stakeholders, trusted advisors and loved ones to explore these core principles, the better situated you will be as you face the end of your career.
It’s shocking to me that so few of our colleagues have these conversations. But it’s why so many advisors leave, and if they do, they never revisit them.
Being forward-looking is part of every advisor’s DNA. However, the emotions of facing the end of something they’ve poured their hearts into can derail the rational inner voice telling them to act. There’s a saying, “it’s an ill wind that blows nobody good.” And there’s an aggregator or consolidator that will reap the rewards when an advisor fails to plan ahead.
It doesn’t have to be this way, but that’s up to you.
