Six steps to succession planning for financial advisors

Putting together a detailed timeline and getting stakeholder buy-in early on are crucial to a successful internal succession.

As people come to terms with the increasing likelihood of living into their 90s and even beyond 100, they are likely to become more judicious about financial planning to ensure they have sufficient assets to see them through their golden years. A big part of that will be ensuring there is continuity in their wealth management arrangements. 

That concern has come sharply into focus given that well over a third of financial advisors in the US are on track to retire over the next decade, and the lion’s share of assets are managed by those approaching the end of their careers. 

For the retiring heads of financial advisory firms, selling the business or merging it with a third party might seem like an attractive exit, and there are certainly buyers: mergers and acquisitions volume for registered investment advisors reached a record high in 2024, with private equity firms leading the charge. Still, nearly 80% of advisors prefer an internal succession.  

Based on insights from experts in wealth management, here are some tips for firms and individual advisors on making their internal succession go smoothly:

1.    Plan ahead

Succession planning should begin five to ten years before retirement or exit: it is not a single event, but requires several steps that need to be clearly laid out in a roadmap with a transition timeline. The first step is defining what a successful transition looks like and aligning all stakeholders behind that vision. It’s worth focusing on big-picture goals such as continuity, innovation or market expansion.

2.    Gauge the value of your practice

In addition to key metrics such as assets under management, revenue streams, client demographics and peer comparisons, this involves a broader evaluation of a firm’s strengths, weaknesses and areas of opportunity. Value is more than just the financial bottom line; it encompasses reputation, client relationships, intellectual property and future earnings potential. It is crucial to identify the unique factors underpinning the firm’s identity and success, and preserve them through the succession process.

3.    Identify and prepare potential successors 

This takes time, intention and commitment. While internal candidates may be best for continuity, external ones could bring much-needed fresh perspectives and skillsets, providing mentoring, leadership training and opportunities to take on increasing responsibility within the firm. Clear expectations and benchmarks should be set for successors, and their progress evaluated regularly. It’s also worth noting that because only 20% of internal buyers can afford to buy out founders, firms also need to know how next-gen buyers will finance the purchase.

4.    Develop a client communication plan 

Maintaining clients’ trust and support during a succession process is paramount. A thoughtful communication plan can mitigate uncertainty and improve client retention. It’s important to communicate the succession plan early to clients, sharing the rationale and detailing the steps that are being taken to safeguard continuity. Introducing successors early to clients and involving them in regular client communications and meetings provides reassurance of a smooth transition.

5.    Post-career planning 

Several questions need to be resolved in relation to departing principals. One of the most important is whether they will leave entirely or stay on in a part-time or mentoring capacity. Increasing longevity means more advisors may opt to remain involved beyond their formal retirement or exit.

6.    Formalize the succession plan 

The succession plan needs to be formalized and institutionalized, and embedded into the firm’s policies. But it should also be a living document, revisited periodically to ensure it stays aligned with changes in the wealth management landscape, the firm’s goals, the health of the business and any personal life circumstances.