investment advisor succession planning

Succession Planning: It’s Good For Business

You hear the statistics at every industry conference and in all of the publications.  More than 60% of advisors don’t have a written succession plan, the average age of the advisor is approaching 60 years, and there are more advisors over 70 then there are under 30.  Yes, putting a succession plan in place is a prudent measure that should be taken to ensure that your clients, employees and yourself are taken care of when retirement comes around. You know this, even if you haven’t actually done it. But what most advisors do not realize is that succession planning is the key to building a long-term, multi-generational business and is a great way to retain top talent.

Growing firms that have not planned for succession often run into similar problems: lack of equity options for junior advisors makes retaining top talent difficult, and a lack of young talent in the firm exacerbates the problem with the client wealth cycle—that is, the business difficulties that emerge when the majority of clients are decumulating, rather than accumulating wealth.  In other words, the firm typically lasts only as long as the founder.  By reinvesting profits back into the firm and properly planning for succession, you deliver a compelling value proposition to retain talent, thereby setting the stage for a multi-generational firm.   This will increase capacity and position your firm for growth.  We have found that sustainable firms that have taken these steps are more likely to win the deal in a highly competitive M&A market.

At Live Oak Bank we have three types of solution for advisors looking to fund a succession plan. First and simplest, we can support a 100% buyout of an exiting partner.  This is the best option for an advisor who has a short timeframe for retirement or is looking to move on from the business. A one-time buyout can take the form of an external sale, or an internal sale to an existing part-owner or employee of the business.  The second option is a staged succession solution.  This is optimal for an advisor who is looking to retire in the next five years, and would like to sell the business in tranches.  We can finance partial equity purchases to the next-generation advisor(s) with a final buyout at the time of retirement.  The last option is a one-time partial equity purchase.  This is appropriate for a firm that would like to enable current owners or non-owner employees to purchase stock in the firm, while the founding advisor still has a long timeline for retirement.

If you are weighing your options for succession, call Live Oak Bank or log into our Knowledge Bank. We can steer you toward helpful information on succession planning and financing options.