How to Retire and Sell Your Financial Planning Practice: A Comprehensive Guide
As a financial advisor, you've dedicated your career to helping clients plan for their financial futures. But have you put the same level of planning into your own retirement and succession? With 37% of financial advisors expecting to retire within the next decade1, having a well-crafted succession plan is more important than ever.
In this comprehensive guide, we'll walk you through the key steps and considerations for successfully retiring and selling your financial planning practice. From choosing the right successor to structuring the deal, we've got you covered
Why Succession Planning Matters
Succession planning is a critical aspect of running a financial advisory practice. It ensures that your clients will continue to receive quality service, your staff will have a clear path forward, and you'll be fairly compensated for the business you've built.
Without a succession plan, you risk:
- Losing clients during the transition
- Decreased practice value
- Difficulty finding the right buyer
- Regulatory and compliance issues
In fact, 25% of advisors planning to retire in the next decade are unsure of their succession plan2. Don't let yourself be part of that statistic. The earlier you start planning, the smoother the transition will be for all parties involved.
Choosing Your Successor
One of the most important decisions you'll make when selling your practice is choosing your successor. You want someone who will be a good fit for your clients and staff, and who shares your values and philosophy.
Consider these key traits when evaluating potential successors:
- Cultural fit with your clients and staff
- Proven track record of success
- Shared investment philosophy
- Commitment to growth
- Financial stability to afford the purchase
You have a few main options for finding a successor:
- Internal successor: Developing an advisor on your team to take over allows for the smoothest transition. You can groom them over time to be the right fit. However, they may lack the funds to buy the practice outright3.
- External successor: Selling to an outside advisor or firm gives you a wider pool of potential buyers. The downside is integrating your team and clients with a less familiar buyer4.
- Merging with another firm: Joining forces with a larger firm can provide resources for growth and a built-in succession plan. But you give up some control and independence in the process5.
Take the time to carefully vet your options and don't rush the process. Finding the right successor is worth the extra effort.
Valuing Your Practice
To get the best price for your practice, you need an accurate valuation. The typical valuation for a financial planning practice is 2.0-2.5x annual recurring revenue6. However, many factors can influence the multiple, such as:
- Growth rate of the practice
- Profitability
- Client demographics
- Fee structure
- Percentage of recurring revenue
Consider hiring a third-party valuation firm that specializes in financial services to get an objective estimate of your practice's worth. They can also help identify areas to improve the value before going to market.
Structuring the Deal
Once you've found the right buyer and agreed on a price, the next step is structuring the deal. The two most common options are:
- Lump sum: The buyer pays the full price upfront in cash at closing. This gives you immediate liquidity, but comes with a higher tax bill7.
- Seller financing: The buyer pays a portion upfront, then makes installment payments over time, typically 3-7 years. This spreads out the tax hit for the seller, but comes with some risk if the buyer defaults8.
You may also negotiate terms like:
- Length of transition period where you stay on to ensure a smooth handoff
- Non-compete and non-solicitation agreements
- Earn-out provisions based on revenue retention
- Staff and lease agreements
Work with an experienced deal attorney to ensure the agreement protects your interests. Don't let eagerness to retire lead you to accept unfavorable terms.
Preparing Your Clients
Your clients are your most valuable asset. How you communicate the transition to them will have a big impact on retention rates.
Start planting the seeds early, at least 1-2 years before your target retirement date if possible. Introduce the concept of succession planning and assure them you are taking steps to find the right successor9.
As you get closer to the transition, communicate frequently and transparently with clients about:
- Your timeline for retirement
- Who your chosen successor is and why
- What the transition process will look like
- How their service will be impacted (ideally not at all)
Host events for clients to meet the new advisor and build rapport. Be available to answer questions and concerns. The more comfortable clients feel, the more likely they are to stay10.
Post-Sale Transition
Your involvement doesn't end when the sale closes. Plan to stay engaged during the transition period, which typically lasts 6-12 months. During this time, you'll work closely with your successor to:
- Introduce them to key clients
- Transfer relationships with centers of influence
- Onboard and train staff
- Transition technology and operations
- Ensure a smooth handoff of compliance and regulatory functions
Create a detailed transition plan with milestones and check-ins to keep things on track. Be prepared to provide extra support and communication to clients and staff during this time.
Planning Your Next Chapter
Selling your practice is a big life change. It's important to plan for your next chapter to avoid seller's remorse or feeling lost in retirement.
Consider questions like:
- What do you want your day-to-day life to look like?
- How will you find meaning and purpose outside of work?
- What hobbies or interests do you want to pursue?
- Where will you live and how will you spend your time?
Having a vision for this next stage will help you feel excited and energized for the future, rather than anxious about letting go of your practice.
Conclusion
Retiring and selling your financial planning practice is a complex process, but with careful planning it can be an empowering transition. By starting early, choosing the right successor, and communicating transparently with clients, you can maximize the value of your life's work and move confidently into your next chapter.
Use this guide as a roadmap to begin planning your own succession. Your future self (and your clients) will thank you.
Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.
Savvy Wealth Inc. is a technology company. Savvy Advisors, Inc. is an SEC registered investment advisor. For purposes of this article, Savvy Wealth and Savvy Advisors together are referred to as “Savvy”. All advisory services are offered through Savvy Advisors, while technology is offered through Savvy Wealth. The views and opinions expressed herein are those of the speakers and authors and do not necessarily reflect the views or positions of Savvy Advisors.
How to Retire and Sell Your Financial Planning Practice: A Comprehensive Guide
As a financial advisor, you've dedicated your career to helping clients plan for their financial futures. But have you put the same level of planning into your own retirement and succession? With 37% of financial advisors expecting to retire within the next decade1, having a well-crafted succession plan is more important than ever.
In this comprehensive guide, we'll walk you through the key steps and considerations for successfully retiring and selling your financial planning practice. From choosing the right successor to structuring the deal, we've got you covered
Why Succession Planning Matters
Succession planning is a critical aspect of running a financial advisory practice. It ensures that your clients will continue to receive quality service, your staff will have a clear path forward, and you'll be fairly compensated for the business you've built.
Without a succession plan, you risk:
- Losing clients during the transition
- Decreased practice value
- Difficulty finding the right buyer
- Regulatory and compliance issues
In fact, 25% of advisors planning to retire in the next decade are unsure of their succession plan2. Don't let yourself be part of that statistic. The earlier you start planning, the smoother the transition will be for all parties involved.
Choosing Your Successor
One of the most important decisions you'll make when selling your practice is choosing your successor. You want someone who will be a good fit for your clients and staff, and who shares your values and philosophy.
Consider these key traits when evaluating potential successors:
- Cultural fit with your clients and staff
- Proven track record of success
- Shared investment philosophy
- Commitment to growth
- Financial stability to afford the purchase
You have a few main options for finding a successor:
- Internal successor: Developing an advisor on your team to take over allows for the smoothest transition. You can groom them over time to be the right fit. However, they may lack the funds to buy the practice outright3.
- External successor: Selling to an outside advisor or firm gives you a wider pool of potential buyers. The downside is integrating your team and clients with a less familiar buyer4.
- Merging with another firm: Joining forces with a larger firm can provide resources for growth and a built-in succession plan. But you give up some control and independence in the process5.
Take the time to carefully vet your options and don't rush the process. Finding the right successor is worth the extra effort.
Valuing Your Practice
To get the best price for your practice, you need an accurate valuation. The typical valuation for a financial planning practice is 2.0-2.5x annual recurring revenue6. However, many factors can influence the multiple, such as:
- Growth rate of the practice
- Profitability
- Client demographics
- Fee structure
- Percentage of recurring revenue
Consider hiring a third-party valuation firm that specializes in financial services to get an objective estimate of your practice's worth. They can also help identify areas to improve the value before going to market.
Structuring the Deal
Once you've found the right buyer and agreed on a price, the next step is structuring the deal. The two most common options are:
- Lump sum: The buyer pays the full price upfront in cash at closing. This gives you immediate liquidity, but comes with a higher tax bill7.
- Seller financing: The buyer pays a portion upfront, then makes installment payments over time, typically 3-7 years. This spreads out the tax hit for the seller, but comes with some risk if the buyer defaults8.
You may also negotiate terms like:
- Length of transition period where you stay on to ensure a smooth handoff
- Non-compete and non-solicitation agreements
- Earn-out provisions based on revenue retention
- Staff and lease agreements
Work with an experienced deal attorney to ensure the agreement protects your interests. Don't let eagerness to retire lead you to accept unfavorable terms.
Preparing Your Clients
Your clients are your most valuable asset. How you communicate the transition to them will have a big impact on retention rates.
Start planting the seeds early, at least 1-2 years before your target retirement date if possible. Introduce the concept of succession planning and assure them you are taking steps to find the right successor9.
As you get closer to the transition, communicate frequently and transparently with clients about:
- Your timeline for retirement
- Who your chosen successor is and why
- What the transition process will look like
- How their service will be impacted (ideally not at all)
Host events for clients to meet the new advisor and build rapport. Be available to answer questions and concerns. The more comfortable clients feel, the more likely they are to stay10.
Post-Sale Transition
Your involvement doesn't end when the sale closes. Plan to stay engaged during the transition period, which typically lasts 6-12 months. During this time, you'll work closely with your successor to:
- Introduce them to key clients
- Transfer relationships with centers of influence
- Onboard and train staff
- Transition technology and operations
- Ensure a smooth handoff of compliance and regulatory functions
Create a detailed transition plan with milestones and check-ins to keep things on track. Be prepared to provide extra support and communication to clients and staff during this time.
Planning Your Next Chapter
Selling your practice is a big life change. It's important to plan for your next chapter to avoid seller's remorse or feeling lost in retirement.
Consider questions like:
- What do you want your day-to-day life to look like?
- How will you find meaning and purpose outside of work?
- What hobbies or interests do you want to pursue?
- Where will you live and how will you spend your time?
Having a vision for this next stage will help you feel excited and energized for the future, rather than anxious about letting go of your practice.
Conclusion
Retiring and selling your financial planning practice is a complex process, but with careful planning it can be an empowering transition. By starting early, choosing the right successor, and communicating transparently with clients, you can maximize the value of your life's work and move confidently into your next chapter.
Use this guide as a roadmap to begin planning your own succession. Your future self (and your clients) will thank you.
Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.
Savvy Wealth Inc. is a technology company. Savvy Advisors, Inc. is an SEC registered investment advisor. For purposes of this article, Savvy Wealth and Savvy Advisors together are referred to as “Savvy”. All advisory services are offered through Savvy Advisors, while technology is offered through Savvy Wealth. The views and opinions expressed herein are those of the speakers and authors and do not necessarily reflect the views or positions of Savvy Advisors.
