One of the benefits of being a financial advisor is the potential to own your business and run it how you see fit. Then, when you’re ready to move on, you can leverage the opportunity to pass the business on to a successor and enjoy the rewards of your hard-earned equity. Though selling your business may sound simple in theory, what that looks like in practice is as unique as the people involved and can be completely different from one sale to another.
Timing of the sale, who the buyer is, terms of the agreement and your involvement post-sale are all crucial decisions to make early in the process. For those planning ahead—or just not sure where to start—taking a deeper look at your priorities and desired outcomes can reveal key guidelines and guardrails.
Timing is key and can be influenced by several personal factors, primarily your vision for life after selling the business. Do you see yourself staying on and supporting the business after or during the sale period? Or are you planning to retire? If retirement is your plan, do you need to wait to be eligible for certain benefits? Either way, mentally and financially preparing for the next step can be a highly influential determining factor.
The timeline you decide on will have an impact on the type of buyer you are looking for. If your plan is, for example, to retire in the next few years, you will likely be looking to complete an outright sale. The buyer in that case is often another advisor who has the capital, capacity and motivation to buy quickly. These deals can be completed in a year or two, though they should be weighed against their risks. More clients have the potential to exit in an accelerated transition since there is less time to acclimate them to the buyer’s products or investment style. Likewise, your own staff will have less time to adjust.
If you’re looking at more of a three- to five-year timeline, a merger with another practice may fit your needs. This allows for more time to seek out a practice with certain alignments to your own, whether that’s the same niche, a complementary fee style, similar culture or a service gap. Though this model requires more time, the commonalities and longer runway typically reduce the risk of client and staff turnover. Generally, mergers occur between similar-sized practices; however, it can work with a larger or smaller practice. Clearly delineating roles, responsibilities and having checkpoints is crucial in these arrangements.
If time and energy spent on training are not pressing factors, a third option is to hire and train a junior financial advisor to eventually become your successor and buy the practice. The timeframe in this scenario can vary widely depending on the experience level of the junior advisor, but I’ve consulted with some businesses where the successor has worked at their firm for over 25 years before the full transition of ownership. This strategy is the most-used option in our people-based industry.
The upside of a junior advisor is that it doesn’t feel like a sale to clients and staff, but rather an organic transition. There is plenty of time to communicate the change and slowly shift remaining clients to the new advisor, who they likely already know and with whom they have some level of relationship. This option allows more flexibility, though bringing newer advisors into the industry and developing them through the transition of the practice is potentially more work at the outset. There is some risk that throughout this process the junior advisor leaves for various reasons, and your time and effort invested will not be realized in a succession. That’s why it’s crucial to find the right person and have checkpoints along the way to ensure you are still on the same page.
In any of these cases, you may be able to negotiate staying on to assist in the transition, allowing you to gain the financial benefits of the sale while easing into retirement. While staying after the sale may reduce risk and make clients more comfortable, you will need to keep your continuing education and FINRA regulations up to date longer, which has some associated costs. It’s also important to think about client perception and potential confusion if the arrangement isn’t made clear to them.
Ultimately, no matter the style or timeline of the sale, you should be able to picture a life a year or several years later that aligns with what’s most important to you. Whether that’s financial security in retirement, satisfied clients and staff, a new venture, consulting at your former practice or all of the above. By starting with your goals and priorities in mind, it becomes easier to design a succession plan that will make them a reality.
Robert Goff is vice president, succession and acquisition consulting at Raymond James.