Broker Check

Succession Planning Secrets

February 01, 2022

For years, financial advisors have believed that when it comes to succession planning, it’s a seller’s market. But as all advisors know, markets change. And these days the opposite may be true: Advisors hoping to sell their business may in fact struggle to find the right successor.

A succession plan is more than an exit plan to help advisors capture the value they’ve built in a successful business. It also is a way to help ensure that the firm’s clients are well cared for after the advisor’s retirement.

Meeting those dual objectives can be challenging—particularly in the current market environment. However, advisors don’t have to do this work alone.


There are multiple phases to a succession plan. Understanding which skills are required at different times—and taking advantages of resources available to help make specific decisions—can help smooth the entire process. Here are seven tips to help find a potential successor and structure a successful transition:

  1. Look broadly to find the right match.

Often times, financial professionals may expect to find a successor in their own firm or network. But being in the same network may not mean that another advisor has the right experience or shares your business philosophy. Consider using a formal matching service to help widen your search. The best services offer a technology component to help scale your search, along with a strong community of likeminded professionals and a process to help qualify would-be successors.

  1. Compare valuation methods.

Valuing a business can be a major deterrent in the succession planning process. However, the valuation process doesn’t need to derail your succession planning. There are three common ways to determine how much a business is worth:

  1. Examining comparable sales of businesses with similar revenue streams.
  2. Performing an earnings analysis, such as a discounted cash flow.
  3. Performing an asset-based analysis.

Each of these may be applicable for your business, so reviewing your options with a qualified valuation expert can help choose which is right for your situation. There are also times when it helps to use multiple methods and apply a proper weighting to each.

  1. Consider a facilitator for negotiations and due diligence.

Buyers and sellers both want a successful outcome from negotiations, but they bring different agendas to the discussion. Hiring a facilitator to handle negotiations can keep the process moving forward and encourage transparency from both sides of the table.

An experienced facilitator can also help with the due diligence process by creating a checklist of information to share between buyers and sellers, and by offering insights or benchmarks based on similar firms in the industry.

  1. Explore financing options.

In the past, advisory firm transactions often were seller financed, due to the perceived risk of these loans by traditional lenders and the challenges of handling a deal made up of intangible assets under the Tax Code. However, we have seen more lenders offering financing, as well as more firms creating acquisition lending programs. Explore which options are available to you and which would be the best fit for your transaction.

  1. Get advice on structuring the deal.

There are several ways to structure a succession plan, and the right approach will depend on both the buyer’s and seller’s goals. It’s also important to remember that transactions in highly regulated industries like finance can be tricky. Working with a professional to help structure your deal can help avoid unintended consequences and regulatory landmines. It’s also important to get input from a tax professional to help structure a deal with a full understanding of the potential tax implications based on current laws, and potential future changes in elements like capital gains treatment.

  1. Create the proper documentation.

Document all the details of your succession plan—not just for legal reasons, but to act as a roadmap for you and your successor. Hiring the right attorney is critical for this step because the documentation should be industry-specific and acceptable to your firm.

  1. Coordinate the transition.

When it’s time to begin the handoff, both buyers and sellers share the responsibility for creating a transition that works for everyone—especially clients. A succession plan should include a detailed roadmap for handling back-office tasks like moving accounts, as well as a plan to communicate the change to clients. Sellers should plan to offer support during this process to help show clients that you’ve handpicked a successor who you believe will be a trusted partner for their needs well into the future. While there are specific skills and expertise required at different phases of this transaction, being able to oversee the entire process can be a skillset in and of itself.

If you are interested in discussing any of these tips in more detail, contact Iron Point today for a no-obligation call.