You Don’t Need a Successor or a Retirement Date To Start Preparing for Your Exit

Set the stage so you can step back or retire whenever the need arises. A lot can be done before committing to a successor or retirement date.

The previous articles in this series discussed how the timing to retire is unique to each advisor, how the need to retire can sneak up on advisors and how a reluctance to retire can hurt the advisor and many others. The thought of preparing your practice for retirement can be overwhelming, however, a lot can be done before choosing a successor or a retirement date that will also help the current focus of your practice and increase it’s value as well as help your successor in case of your emergency exit or your retirement.

This article describes the first seven steps of an 18-step process that will help financial advisors organize their transition plan in advance of their retirement including some ideas from my books Transitioning Clients and the Retirement Exit Decision and Business Models for Financial Advisors. Many of these steps should be well underway or completed before choosing a successor or determining the actual exit date.

As all practices, advisors and clienteles are unique, the order and level of attention to each of these steps will vary. However, the earlier an advisor starts the process, the higher the likelihood of a successful transition. Advisors in all stages of their career should employ many of these steps when preparing their “hit by a bus” or business continuity plan. My clients knew who my successor would be if I was incapacitated many years in advance of my retirement. I am certain that this knowledge resulted in a higher client retention rate as I approached the end of my career as an advisor, as well as after my retirement.

The first six steps should be completed by an advisor before selecting their successor.

STEP 1: Clarify or review the practice’s mission and commitment to clients.

STEP 2: Clearly articulate and document the existing business model in detail. In order to choose a successor and for a successor to believe they can successfully transition the clients into their practice, both must understand who the clients are, the services the clients are accustomed to receiving and all related costs. A financial advisor’s business model includes six components:

COMPONENT 1 identifies the characteristics of the most compatible clients of the practice such as background, personality traits, needs, and goals.

COMPONENT 2 identifies the advisor’s unique client services such as

a) client communication methods and frequency

b) the approach to investment allocation and selection

c) financial planning services such as, forecasting, retirement planning, estate planning and

d) services relating to tax reporting, tax returns and tax strategies

COMPONENT 3 of an advisor’s business model includes identifying the processes and presentations for delivery of services and products in addition to processes for practice management.

COMPONENT 4 relates to the resources needed to provide the services such as team members, expertise, research and software, and who will provide those resources…. often the advisor’s firm and probably some external sources.

COMPONENT 5 identifies how and how much clients pay for their financial services including how the clients are charged directly by the advisor and other indirect costs that their clients pay (e.g. mutual fund fees, ETF fees etc).

COMPONENT 6 of the business model defines how the practice pays the active advisor.

A customizable checklist process to quickly and easily prepare a document articulating an advisor’s business model is available through .

STEP 3: Consider the best future approach to services. For example, perhaps the retiring advisor only picks American stocks but thinks future investments should include managed money, International exposure, ETFs or alternative investments. They can modify their written current business model to create the desired service model of their successor.

STEP 4: The advisor planning their exit determines the best future fee structure for their clients. Perhaps the retiring advisor charges commissions per transaction but thinks that fees based on asset values is best for the future.

STEP 5: An advisor planning their exit, should consider how willing and able they are to share their processes and client presentations with their successor. The transition is more likely to succeed if the successor can provide a consistent or enhanced client experience.

STEP 6: An advisor planning their exit should determine if a separate successor advisor is needed for different groups of clients based on particular needs such as, specialized financial planning or tax needs, stock picking skills or where the clients live.

STEP 7: Choosing an exit-planning advisor’s successor(s) is the most important step of the process. Completing the previous six steps puts the exit-planning advisor in a much better position to determine the preferred personal qualities and practice characteristics of a compatible successor. An advisor should list the qualities they are looking for in a potential successor including personal qualities and compatibility with the business model component attributes the retiring advisor believes are most appropriate going forward. A customizable worksheet for comparison of potential successors is available as a free download from .

My next article will discuss the qualities to look for when choosing a successor advisor. Another article will follow to review steps 8 to 18 which occur after choosing a successor when the chosen successor becomes more involved.

Related: Reluctant To Retire? Potential Victims of an Advisor’s Reluctance To Retire