Financial Advisor Insights

The Ultimate Guide to Succession Planning

The Ultimate Guide to Succession Planning
March 25, 2024

Succession planning is a critical process for ensuring the long-term success and continuity of any organization, especially when it comes to the financial and wealth management of high net worth individuals and families. Without a well-thought-out succession plan in place, a sudden departure of a key leader or advisor can throw the entire organization into disarray and put clients' financial futures at risk.

In this ultimate guide, we'll dive deep into what succession planning entails, why it's so important, and provide actionable steps and best practices for making your succession planning a success. Whether you are a financial advisor, wealth manager, or high net worth individual yourself, this guide will equip you with the knowledge and tools needed to secure a prosperous future for generations to come.

What is Succession Planning?

At its core, succession planning is the process of identifying and developing new leaders who can replace old leaders when they leave, retire or die1. It involves having a plan for how to smoothly transition clients, assets, and responsibilities to the next generation of advisors and managers.

For financial advisors and wealth management firms that serve high net worth clients, succession planning takes on even greater importance. Ultra-high net worth individuals (those with at least $30 million in assets) have extremely complex financial situations that require careful planning and continuity of service to manage effectively14. An unexpected disruption can be catastrophic.

Some key aspects of succession planning include:

  • Identifying potential internal successors and providing them training and mentorship
  • Determining whether to pursue an internal succession or sell/merge the business externally
  • Establishing a clear timeline and process for the transition
  • Communicating the plan to clients, employees and other stakeholders
  • Addressing legal, financial and regulatory considerations
  • Regularly reviewing and updating the plan as circumstances change2

By taking a proactive and comprehensive approach to succession planning, firms can provide peace of mind to their clients and unlock the full value of the business for the existing advisor.

Why Succession Planning Matters

Here are some of the top reasons why every financial advisory and wealth management firm needs to prioritize succession planning:

1. Protect and retain clients

Clients, especially high net worth ones, want to know their financial affairs will be looked after even if their primary advisor is no longer in the picture. In fact, a 2018 study found that nearly 70% of children fire their parents' financial advisor after receiving an inheritance3. Having a succession plan in place shows clients that their needs will continue to be served and makes them more likely to stay with the firm during a transition.

2. Realize the value of your life's work

For founding advisors, their book of business represents their most valuable asset and the culmination of decades of hard work. Failing to properly plan for succession can leave large amounts of money on the table. According to FP Transitions, the average financial advisor's practice is worth 2.3x to 2.7x annual recurring revenue4. Succession planning helps ensure advisors harvest maximum value for the practice they've built.

3. Provide career paths for top talent

Ambitious young advisors want to see a path forward to becoming partners and owners themselves one day. A succession plan that includes them as future leaders gives them a reason to stay and build their career at the firm for the long haul. Without a plan, firms risk losing their most promising people to competitors that offer better growth opportunities.

4. Ensure business continuity

Even the most successful business can quickly unravel if there is no one ready to take over when the founder departs. Succession planning mitigates the risk of a key-person dependency and positions the firm to thrive long after the original leadership is gone. It also prevents a forced fire sale of the business due to lack of internal succession options.

5. Facilitate a smooth transfer of wealth

For ultra-high net worth families, succession planning goes beyond just the financial advisory business. It also means having a clear plan for how to transfer wealth to the next generation in a way that minimizes taxes, family conflict, and loss of control14. Advisors play a key role in helping these families navigate complex estate planning and wealth transfer issues as part of the overall succession process.

6 Steps to Succession Planning Success

Now that we understand the importance of succession planning, let's look at some actionable steps to developing and implementing an effective plan:

1. Start early

Experts recommend starting succession planning at least 10 years before an expected transition1. This provides ample runway to identify and groom successors, implement the plan, and make adjustments as needed. Don't wait until succession is imminent to start planning.

2. Identify your successor(s)

Consider both internal and external candidates, keeping in mind the skills, expertise and personality traits that are essential to the role. Look for someone who is not only technically competent but also fits the culture and has the leadership abilities to drive the business forward2. Communicate openly with potential successors about the opportunity and assess their interest level.

3. Develop your bench strength

Once you've identified likely successors, invest in their training and development. Expose them to all aspects of the business, including client relationships, investment management, operations, compliance, etc. Allow them to take on increasing levels of responsibility over time so they are well-prepared to step into leadership roles4.

4. Define the deal structure

Will this be an internal succession or external sale/merger? What is the value of the business and how will the purchase be financed? An independent valuation is important to determine a fair price. Common financing options include seller financing, bank loans, or equity from a third party1. Consult with legal and financial advisors to determine the most advantageous deal structure.

5. Create a transition timeline

Establish a clear schedule for how and when the transition will occur. This could involve a gradual transfer of client relationships and responsibilities over several years, or a more abrupt transition upon the founder's retirement2. Be sure to build in contingencies for unexpected events. Regularly communicate the timeline to clients, employees and other stakeholders.

6. Implement and monitor the plan

With the succession plan in place, it's time to put it into action. This requires close coordination between the departing and incoming leadership to ensure a seamless handoff. The plan should be treated as a living document, not a "set it and forget it" paperweight4. Regularly review and update the plan as circumstances change, such as the development of successors, M&A activity, market conditions, etc.

By following these steps, firms can implement a robust succession plan that positions the business and clients for long-term success. However, the process is not without challenges.

Overcoming Succession Planning Challenges

Here are some of the most common obstacles firms face with succession planning and how to overcome them:

Lack of time/bandwidth

Succession planning often gets pushed to the backburner as advisors focus on day-to-day client needs and growing the business. But neglecting it can be a costly mistake. Make succession planning a standing agenda item and dedicate time to work on it consistently. Engage third-party consultants or coaches if needed to keep the process on track4.

Emotional ties to the business

Many advisors, especially founders, have a hard time letting go of the reins and trusting someone else to take care of their clients. Acknowledge those emotions, but don't let them become a roadblock. Remember that a well-executed succession plan is ultimately in the best interests of clients, employees and the business1. Rely on outside counsel to provide an objective perspective.

Insufficient future leader bench strength

Not having qualified successors ready to take over is a common reason succession plans fail. That's why it's critical to start identifying and developing high-potential talent early. Make succession a priority in hiring decisions. Provide ample training, mentoring and growth opportunities to build a deep bench2. Consider recruiting external successors if needed skill sets are lacking internally.

Misalignment on valuation

Differing opinions on what the business is worth can derail even the best laid succession plans. To minimize conflict, obtain an independent third-party valuation of the practice1. Understand the various valuation methods and multiples for wealth management firms. Align on valuation expectations early in the process to avoid surprises down the road.

Client/employee retention during transition

Transitions can be unsettling for clients and staff, leading some to take their business/talents elsewhere. Mitigate this risk by communicating early and often about the succession plan. Personally introduce clients to their new advisor and provide assurances that service will continue uninterrupted2. Offer retention incentives to key employees. Demonstrate stability and continuity throughout the process.

While not easy, these challenges are surmountable with proper planning and execution. The key is to stay focused on the end goal and not let short-term obstacles derail the succession planning process.


In summary, succession planning is an essential process for ensuring the long-term success of financial advisory firms and the clients they serve. It protects against the sudden loss of key leaders, provides continuity for clients, and helps advisors maximize the value of their life's work. For high net worth individuals and families, a well-crafted succession plan is critical for the smooth intergenerational transfer of wealth.

By starting early, identifying and developing successors, defining the deal structure, and treating the plan as a living document, firms can overcome common challenges and achieve their succession planning goals. While it may seem daunting, the cost of not planning for succession is simply too high to ignore.

Use this guide as a roadmap to kickstart or refine your own succession planning process. Your future self, clients, and successors will thank you.