How financial advisors prepare for retirement

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SmartAsset: Succession Planning Tips for Financial Advisors

SmartAsset: Succession Planning Tips for Financial Advisors

As a financial advisor, I often spend a lot of time helping clients create viable retirement plans. However, it’s also important to consider what your personal exit strategy will be once you’re ready to retire. Succession planning for financial advisors is not that different from succession planning for other companies. However, there are some unique challenges to consider. We’ll see what they entail.

If you’re still focused on growing your business, SmartAdvisor makes it easy to connect with potential customers.

Succession Planning Tips for Financial Advisors

If you’re ready to create a succession plan for your advisory business, it’s helpful to know where to start. These tips will help you create a plan to exit your business with minimal disruption.

Tip 1: Identify your end goal

Succession planning is about starting with an outcome and working backwards to create a plan designed to get you to that outcome. The sooner you start thinking about your end goal, the more time you have to plan and adjust along the way if necessary.

Your overarching goal may be to take over the business. But there are different versions of what it looks like. Passing the business on to your children may seem like the obvious choice. However, if they are not interested in running the company, they may have to broaden their horizons to find a successor.

For example, you might consider selling your business to a trusted employee or another advisor.

It’s also important to consider your personal timeline for getting away from business. It might make more sense to gradually pull back as you nurture a successor rather than abandoning all duties at once.

Tip 2: Estimate business value

If your goal is to sell your business, getting an accurate valuation is helpful so you know how to price it. You can easily estimate its market value by subtracting all the liabilities of the business from the assets.

This number is a starting point for determining the right price for your business. Having an accountant review the financials of your business will give you a more accurate assessment. You can also take the extra step of undergoing a professional business evaluation.

When looking at numbers, it’s important to separate emotions from the process. The business may seem valuable to you, but interested buyers focus on the numbers and the likely return on investment.

Tip 3: Solidify your personal financial plan

Selling your advisory business can sometimes allow you to walk away with a significant amount of money on hand. However, apart from what you’re trying to get, it’s important to have some planning. This is to ensure that you are not underprepared if you sell at a lower than expected price.

Some of the most important considerations at this stage include:

  • Continuing Contributions to Retirement Plans

  • Participation in disability insurance and long-term care insurance

  • Buy life insurance to provide for your loved ones after you die

  • Decide what kind of retirement lifestyle you are planning

  • Drafting an estimated retirement budget

Health insurance is also a consideration, as Medicare doesn’t start until you’re 65. If you plan to retire or semi-retire by then, you will need to decide how you will pay for your medical expenses during that time.

Tip 4: Communicate your plan

Succession planning works best when everyone in the business knows what to expect. If you have created a succession plan, it is important to ensure that those affected by the plan are aware of how the transition will be handled.

This includes both employees and clients. Longtime employees may want reassurance that their role in the business will not be reduced or eliminated. Clients, on the other hand, want to know that you are still in good standing after you leave the business.

Tip 5: Get help

Succession planning is not necessarily a one-time-and-forget-it. It could be an ongoing process. You may also need help making sure you’ve ticked all the required boxes.

A succession consultant can help you identify weaknesses in your current plan and holes that need to be addressed. They can review your plan and look for obstacles and challenges you may have missed.

You can consult your accountant or tax advisor to discuss the tax implications of selling your business. If you need key person insurance for your business or any other type of insurance, an insurance agent can help.

Why financial advisors need a succession plan

SmartAsset: Succession Planning Tips for Financial Advisors

SmartAsset: Succession Planning Tips for Financial Advisors

Succession planning is your opportunity to decide what will happen to the business you’ve built if you retire, pass away, or simply decide you’re ready to move on.

Nearly two-thirds of financial advisors have a succession plan, according to a 2022 SmartAsset poll. If you belong to the remaining third, you may be putting your business at unnecessary risk.

Having a succession plan is helpful if:

  • I am planning to retire but want to ensure the continuity of my business

  • I want my business to be passed on to an heir.

  • You are planning a sale and want to make the transition as smooth as possible for your clients and staff

  • You want to plan in advance for unforeseen circumstances that prevent you from actually running your business, such as a prolonged illness or disability.

Succession planning for financial advisors is essentially a safety net as it allows you to plan for any contingency that could affect your business operations.

What should a financial advisor succession plan include?

Succession planning is designed to answer specific questions related to different outcomes. What to include in a personal succession plan depends on the end goals of the business and what happens after you no longer control the business.

For example, let’s say you want to hand over a business to your two older children who are employed by a company. Succession planning should answer the following questions:

  • What controls does each child have?

  • How is ownership shared between them?

  • What is each task?

  • What if one child decides they no longer want to be involved in the business?

More broadly, succession plans can also be used to identify individuals who are important to business operations. If you are familiar with all aspects of running your business, you could be a key person. However, you may have additional support staff who play a critical role.

Succession planning may need to include guidance on which employees or key persons to retain after leaving the company. If these individuals wish to move because their business has been sold, you may also need to specify a process for recruiting and training the necessary staff instead.


SmartAsset: Succession Planning Tips for Financial Advisors

SmartAsset: Succession Planning Tips for Financial Advisors

Developing a succession plan can clear the doubts about what will happen to your business when you are ready to retire or move on to another business. The sooner you turn your attention to succession planning, the more time you will need to create a plan that will bring the greatest benefit to your business and everyone involved with it.

Tips for growing your financial advisory business

  • Make it easier for clients to find you. If you’re ready to grow your financial advisory business, but want to do it in a streamlined way, check out SmartAsset’s SmartAdvisor platform. We match certified financial advisors with the right clients across the United States and help you conveniently grow your client base online.

  • Widen the radius. According to a recent study by SmartAsset, many advisors expect to continue meeting with clients remotely after COVID-19. Consider broadening your search. Also, work with investors who are accustomed to holding virtual meetings and spacing out in-person meetings.

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Succession planning tips for financial advisors first appeared on the SmartAsset blog.

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