With around a third of the industry’s financial advisors expecting to retire in the next decade and a looming potential shortfall of professionals compared to the demand for advice, RIA successors will either emerge internally or through an acquisition. One path at that fork in the road likely poses a more lucrative exit from the field, but with less autonomy about the transition of clients to a new advisor after selling the firm. The other trail enshrines an advisor’s legacy with those clients under the same company with hand-picked successors. But developing those successors has proven challenging for many firms that are simultaneously fielding higher bids from RIA aggregators.
Internal successions equate to a “natural discount of at least 30%” compared to selling to private equity-backed firms and other RIA and advisory team consolidators, said Steven Tenney, a former advisor who is the founder of consulting and RIA coaching firm Grandview & Co. and the author of a new book published earlier this month called, “RIA Succession Alpha.” They also require “empowering the next generation of successors,” so that “the firm starts to run on its own, with less input from the founder,” he noted. After an RIA has created its plan, its one or more owners and their team must work together through the transition.
“Without clarity, you’re aimless, and so you’ve got to start there,” Tenney said. “Many people treat succession planning as an event, as opposed to a necessary part of business. There is near-perfect overlap between succession planning and good business planning. It’s one and the same.”
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This article was first published by Tobias Salinger
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