Three Must-Ask Questions for Advisors Thinking About Selling Their Firms

When approaching retirement, it’s essential to evaluate your endgame and your succession plan.

By Susan Danzig and Jeff Nash

Many advisors don’t adequately prepare their practice to get a reasonable selling price. One study found that 70% of advisors don’t have a succession plan in place.

If advisors don’t make an effort to create a plan and see it through, they could lose big when selling their advisory practice.

When an advisor who is the owner of the firm is nearing retirement they must evaluate their endgame and succession plan. Here are three important questions:

1. Do you have a lifestyle practice or an advisory business?

When making a succession plan, advisors must determine whether they are running a lifestyle practice or an advisory business.

Lifestyle Practice
Lifestyle practices are not focused on growth. They steadily increase their AUM over time, providing those that work there a stable and manageable environment.

Advisors in a lifestyle practice tend to be more focused on providing high quality for their existing clients; they occasionally add some new clients and they are also focused on their own quality of life. The typical lifestyle practice has under $150 million in assets under management and has fewer employees than an advisory business, although there are no hard-and-fast rules that determine which kind of organization it is.

Lifestyle practices provide advisors with many benefits, including:

• Increased freedom of lifestyle for the owner and employees.
• Ability to work from any location at any hour.
• Generally closer proximity to clients.

Advisory Business
Advisory businesses are focused on growth. The businesses tend to have larger teams and the individuals on those teams tend to be more specialized. The leadership demand more of themselves and of their teammates. Whether the roles are administrative or producing advisors, the environment will typically be collaborative and competitive.

Advisory businesses are often made up of multiple advisors. Besides the senior advisors, there can be one or more junior advisors all collectively growing their assets each year. The typical sized advisory business starts at $100 million in assets and goes up from there.

Advisory businesses provide owners with many benefits, including:

• A business that may be more desirable for acquirers or succession opportunities because its structure and culture are not so dependent on personalities and the image of one person.
• Larger teams that include specialists within the organization.
• Can have clients over a larger geographic area.

2. As your clients age and move, should you move your practice and follow them?

As the average age of advisors in the industry continues to grow, many advisors face the challenge of considering a move and what to do when they change their location. Whether they’re migrating to a warmer climate, following an important client, or just trendsetting, they must decide how to handle the transition.

There are many important considerations for advisors moving to a new location:

• How do they establish a toehold in that location? Should they buy a new practice or grow organically? Potentially both options make sense depending on their goal. For example, advisors considering a move from the Northeast to the Southeast frequently look to buy a practice from a retiring advisor in the new location to have a toehold there.
• Do they have any existing clients there?
• Does the new location have sufficient new client opportunities?
• Does the new location coincide with hobbies or interests? That can be a great way to network and develop new clients. For example, if you enjoy golf, you might move to a golf community and meet new clients that way.

But advisors who try to change their location will also face serious challenges. Advisors opening offices in other cities to expand the business should consider:

• How will their firm work in two locations? This is about being insightful and thought provoking, and not about giving them all of the answers.
• How will remote teams communicate?
• How will virtual meetings be conducted?

As advisors look toward this next phase of their business and life, they need to be thoughtful in the approach.

Whether you have a lifestyle practice or a thriving advisory business, selecting a second city for either personal or business reasons is an important consideration.

3. Should you partner with a younger advisor?

Advisors need to decide if partnering with a younger advisor is the right succession plan for them.
Frequently advisors see having a junior advisor as the ideal succession plan. This plan has historically worked for countless advisors.

One of the keys to success in this plan is to have the advisor in place early enough to become a part of the firm. For firms that have this next generation already in place, it is not only a great advantage to the original founders but it also can increase the enterprise value of the entire business.

However advisors who are within five years from winding down and don’t have a junior advisor already in place will have greater challenges and risks in finding one that fits into a succession plan.

Whether you have a lifestyle practice or an advisory business, finding a next-generation successor presents some significant risks. Many advisors don’t consider these possibilities:

• The junior advisor gets sick, and the senior advisor has to buy back shares at a premium.
• The junior advisor gets impatient and starts to steal from the business.
• The junior advisor comes into health or financial hardship and stops making payments.
• The junior advisor doesn’t want to get a loan to buy out the senior advisor.

One significant mistake advisors make is to sell too late. If the practice begins to shrink and AUM declines, the business’s valuation can also shrink as a result.

Many business owners wait too long to sell because they always think the firm will be worth more in the future or they don’t want to give up income (salary) now. Taking an end-planning approach to your own business similar to how you would consult with a client will not only yield a better overall outcome, it will also enable you to get more money if you plan on selling your business.

Susan Danzig, a certified business development coach and certified master neuro linguistic programming practitioner, has been consulting with financial services professionals since 2004. She helps her clients understand, appreciate and clarify their true value, define their specialization and create effective marketing strategies. Susan’s specialty is brand refinement, messaging and strategic marketing to enhance a business’s market value for growth and sale. Susan is a national board member of the Financial Planning Association. She can be reached at and 925-954-1773.

Jeff Nash, CEO of Bridgemark Strategies, started in the industry in 1993 as a financial advisor and launched Bridgemark Strategies, an independent recruiting, consulting and M&A firm, in 2013. Bridgemark Strategies aims to help financial advisors and financial advisory firms navigate their next phase of their business life, be it changing broker-dealers or RIA platforms or selling or merging their business. Jeff can be reached at and 866-266-8823.

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