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How to find the right RIA successor

January 9, 2025 Finding the successor to a financial advisor’s practice requires a complicated mix of the right personality, skills, capital, compensation and — most importantly — time, experts said. The consensus for an adequate number of years to ensure a healthy transition among succession-savvy advisors and M&A experts interviewed by Financial Planning amounted to about five, or even longer when taking into account the difficulties of picking the successor. That’s why more registered investment advisory firms and wealth management companies of all types are devoting resources to developing their talent in-house rather than recruiting it. “This is a big challenge for our industry. The other big challenge for our industry is attracting talent into our industry. So succession planning is key,” said Pradeep Jayaraman, president of Bluespring Wealth Partners, the RIA M&A arm of Austin, Texas-based wealth management firm Kestra Holdings. Jayaraman joined the firm in September after prior tenures with Focus Financial Partners and Goldman Sachs. New tactics for a familiar problem Estimates that more than 100,000 advisors comprising more than a third of the industry’s ranks will retire over the next decade are prompting more firms to consider how they can find successors or carry out M&A deals that lay out the future of their businesses when they’re gone. Besides the structure of the transaction, the thorny and often emotional process for advisors to step down from a business they’ve built over decades and the necessity of capital financing, the choice of the right successor looms as one of the most important questions for all plans and one with massive stakes for client retention.   “There’s a lot of succession that’s going to continue to happen across the industry,” said Kris Carroll, a managing director in the Carolinas region of Plymouth, Minnesota-based RIA aggregator Wealth Enhancement Group. In addition to being an adjunct professor at Winthrop University and a second-generation advisor, Carroll has led in-house training efforts at the firm through its “Wealth Enhancement Group University” and a current role coaching practice founders on their succession planning. “The best thing and the thing people need to hear over and over again is, just because you’re not ready to retire doesn’t mean you shouldn’t be thinking about it,” he said. “It’s so interesting that we help other people retire all the time and yet don’t think about the finer points of our own retirements.” To that end, the best time for advisors to begin thinking about their successor isn’t right when they launch their firm — but probably “shortly thereafter,” according to David Grau, founder and CEO of M&A and succession consulting firm Succession Resource Group. Grau also frequently reminds advisors that “you can’t just go recruit it and find a mini-me” to get their successor, he said. In fact, advisory practices that have reached $2 million in revenue or above usually need at least two or even three specialists in particular areas rather than one successor. That means that they should think in terms of a career track similar to those of accounting and law firms and seek interns directly from local colleges who can grow into those roles over time. The next generation of advisors and wealth management professionals “want something to believe in, something to buy into literally and figuratively,” Grau said. In that vein, equity-based compensation can retain advisors for longer-term careers with the firm. The last five years have seen “mass adoption of phantom or synthetic equity plans” aiding founders and successors in addressing a key financial challenge: less-tenured advisors don’t usually have the capital on hand to buy an advisory practice and their more experienced counterparts are often wary at the thought of handing over their firms, Grau said. Deferred compensation based on the value of the company reduces the obligation to get outside capital.    “As the firm grows in value they can capture a small portion of that,” Grau said. “They’ve got the ability to buy a little bit of equity or have a down payment without having to pull out of their personal savings.” Lessons from the field Some founders no longer have enough time to work with to set up a successor in that way, though. About nine months ago, a sole practitioner working with 220 client households and about $80 million in assets under management had agreed to a succession deal with Fairfield, New Jersey-based advisory practice U.S. Financial Services. It’s one of 25 advisory practices owned by Bluespring, and the firm has picked two junior partners as its successors while acquiring two other books of business in the past five years, according to U.S. Financial Partner and Managing Director Steven Gallo. Its most recent succession deal presented challenges. “He had an administrative assistant and no other staff,” Gallo continued. “Unfortunately, just as we were getting ready to close the deal, he suddenly passed away. Taking over a practice without the retiring advisor available is an extremely difficult process. Still, we have been able to retain 95% of the clients to date, and we believe that we will continue to grow this practice as we can offer many additional benefits and services to these clients.” Ideally, the outgoing advisors ought to expect a runway of two to three years after the deal — but not much more than that, according to Jayaraman. On the one hand, they’ll want to be introducing the clients to their successor as a way of “being very thoughtful about this on a post-transaction basis and not just saying, ‘OK, I sold my business,’ and checking out,” he said. On the other, founders who wait too long to leave their firms and don’t delegate enough on their way out are falling into what Jayaraman views as the two biggest pitfalls in succession. To smooth the process of going from the first generation to the second (or from “G1” to “G2” as industry experts refer to it), Bluespring has created a “successor academy,” which is a two-year program for about eight to 12 advisors from across its firms who learn together through case studies, coaching sessions, webinars and other content.  “Sitting where we are, we do get a good sense of what’s working and what’s not and we’re

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