Why Agents And Advisors Must Be Proactive In Succession Planning

Most financial professionals are eager to help their clients create the best possible outcomes in retirement. For this reason, succession planning is something advisors and agents often emphasize to their entrepreneur and business owner clients.

However, numerous studies and surveys indicate that most financial advisors have no comprehensive succession plans in place for themselves. According to data gathered by the Financial Planning Association,1 only about 27 percent of advisors surveyed say they have created an adequate succession strategy.

Many of the advisors and agents surveyed confessed to feeling ill-prepared to sell or transition out of their practices should the need arise. Yet, a well-designed continuity plan is crucial to ensuring both your and your clients’ wealth is protected when you can no longer work in your practice. Operating without a backup plan is something that puts you, your clients, and your loved ones at risk.

While many financial services professionals have a basic succession plan, often following FINRA and SEC guidelines, these are seldom detailed enough to allow for a smooth and efficient transition.

The goal of having a more robust business succession and continuity plan is to ensure that there are written processes and protocols in place that enable essential business functions to continue with as little interruption as possible. With a Plan B in place, you and your team will know exactly what to do if an advisor, agent, or key staff member leaves the business or there is a natural disaster.

In addition to ensuring that key personnel at your firm have access to sensitive client data, passwords, vendor lists, licensing information, and other vital data and tools, you should include other critical components in your succession plan.

Have a professional valuation done.
The first step in formulating your succession plan is to get a proper valuation for your practice. Financial service firm valuations can be challenging since most practices have few hard assets. A fair amount of their value lies in intangible assets such as the “goodwill” of the business.

However, a thorough and accurate valuation of your company is essential for making better business decisions. Knowing the actual value of your business will go a long way toward helping you secure more favorable loans or determine equity when writing your succession plan. Once you have a realistic understanding of what your firm is worth, it will be easier to find ways to increase that value before selling or passing it on to a family member or employee.

When performing a business valuation, it’s essential to locate someone with the specialized skills and tools required for financial practice valuations. A reasonable financial or insurance practice valuation should not depend on “rule of thumb” calculations. Instead, valuation experts factor things such as your “book of business,” business model (fee-based, fee-only, or commission-based), and percentage of recurring income, among other things, into their reports. The business valuation report will go a long way toward helping you craft a viable exit plan.

A wise course of action is to create a financial plan.
Similar to a dentist who pushes his patients to do a better job flossing while his own teeth are falling out, many otherwise competent money professionals don’t have their financial houses in order. If you are like most advisors, your practice is the cornerstone of your retirement plan. Suppose you don’t take time to consider your practice’s assets and investments, make some projections for future cash flow, or take a hard look at tax obligations. In that case, you may not have any peace of mind when the time comes to exit your business.

Have your accountant or CFO look for any revenue “leaks” in your practice and suggest methods of increasing cash flow and reducing tax liabilities. This type of audit is helpful whether you plan to sell the firm or pass it on to another advisor or family member.

Do you know who will take over when you’re gone?
Every financial practice owner must decide who will run things when they can no longer do so. Do you know who should take over your practice? Will you sell your business, or do you have a family member or associate who will step into a leadership role? How will you inform your clients of this transition so they feel confident enough to stay with your company? Who in your practice is prepared to take on more significant leadership roles?

Do you need a “succession committee?”
No matter the size of your firm, you might want to think about forming a succession committee consisting of key employees, your attorney, CPA, and any relevant family and staff members. This committee will meet regularly to formulate, review, and revise your exit strategy. Your committee should think about questions such as:

  • How would your death or incapacity or that of a principal staff member affect the firm’s status? Would the licensing, advisory agreements, and legal ownership be affected?
  • Who will be in charge of dealing with creditors and vendors?
  • If you charge advisory fees in advance, is there a protocol in place for refunding those fees?

Everyone benefits when advisors choose to plan for the time when they no longer work in their practices. A thoughtfully designed, well-orchestrated succession plan will help ensure that the company you worked so hard to build will continue long after you leave. You will rest easier knowing that your clients and their assets will receive the care and attention they deserve.

A well-formulated exit blueprint will also help maintain harmony in your family and among your staff and employees. Even if you plan on working long past the usual retirement age, an exit strategy gives you and your clients more confidence and peace of mind. While you can’t predict the future, a succession plan goes a long way toward assuring that your clients and staff members will continue to receive the highest level of care, even when you are no longer there.


Jerry Yu is one of Southern California’s most trusted financial experts, with over 20 years of experience helping clients save income tax, preparing tax-efficient retirement strategies, asset protection, business succession plans, and wealth transfer

Yu is a member of the Million Dollar Round Table, Top of Table and is a senior vice president with Reign Financial Services, which has offices in Los Angeles, San Francisco Bay Area, Seattle, Houston and Dallas, TX, Raleigh, NC, New York and New Jersey.