The average age of advisors has been increasing over time, making succession planning a necessary consideration for many advisors. “Advisors have a diverse range of objectives that they pursue with their succession plans,” states Michael Rose, associate director of wealth management at Cerulli Associates. “Given the amount of assets controlled by this cohort, it is essential that advisors define those objectives and determine the best path to achieve them, far in advance of their transition.”

Advisors’ succession planning options can vary depending upon whether they are employees of a captive broker/dealer (B/D) or independently affiliated. Independently affiliated advisors often have a wider range of succession options, including the ability to build larger, long-lived, multi-partner organizations that provide a path to equity ownership over time to facilitate internal successions, in addition to external sales.

In evaluating potential successors, advisors place the most importance on the personality of the acquiring advisor (88 percent), the likelihood to put the client’s interests first (85 percent), and the regulatory/compliance record (85 percent). “It is essential that there is a strong alignment of core values, service delivery, and investment philosophy between firms,” states Rose. Style differences with the seller (52 percent), client transitions from the seller to the buyer (48 percent), and overall time commitment to finalize a deal (48 percent) are the top challenges for advisors acquiring a practice, according to practice management professionals.

Practices considering internal succession should pursue transparency while embracing the concept of shared equity ownership as part of their culture. “Communication with the next generation of advisors is essential to retention. It is important to recognize that talented advisors will only wait so long for ownership opportunities to come to fruition,” Rose comments. For independent firms considering the sale of equity to the next generation advisors on their teams, the research recommends securing sources of financing for them. “The next generation of advisors may not have the resources to pay out of pocket,” adds Rose. According to the research, sources of financing tend to be diverse in nature and can be seller-financed or involve loans from platform partners, such as independent broker/dealers (IBDs), custodians, banks, and private equity firms.”

Regardless of whether a business transition is done through sale to a third party or through internal succession, it is highly advisable to have strategic partners that can advise independent firms on the various elements of their succession plan.

“By going independent, advisors take control over how they build their practice, and many have built sizeable firms with significant value,” states Kenton Shirk, vice president of practice management at Commonwealth. “Successful independent firms now often think in terms of the legacy they will leave behind for their clients and community—and they’re adopting business models designed to endure even after they exit the firm. A strategic partner is critical to helping firms navigate options, whether they’re thinking ahead about succession or driving growth through acquisitions. A partner firm can also assist with key elements of a transition, including financing, valuation resources, guidance on terms and structure, sourcing prospective candidates, and more.”