With 99% of independent financial services and advisory practices going out of business when their founder retires, firms must increasingly view succession planning as a growth strategy not a retirement strategy,1 according to a white paper released by SEI and FP Transitions.
The white paper reveals that while nearly one-third (32 percent) of advisors claim to have a succession plan, only 17 percent have a binding and actionable agreement. This data points to the need for advisors to re-assess their succession planning goals and strategies. The white paper, titled, "Acquisition and Succession: Shift Your Focus from Retirement to Growth," surveyed 771 financial advisors to gain insights on their acquisition, succession planning, and continuity planning activities.
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"Advisors are beginning to realize that succession plans and continuity plans can actually become growth tools," said John Anderson, Head of SEI Practice Management Solutions, SEI Advisor Network." By taking the time to plan for the future, advisors are giving themselves a key competitive advantage in the present. The process gives them a clearer picture of their firms’ overall health, prioritizes finding a new generation of talent, and sends the message to clients that the firm will be viable for years to come."
"Succession planning isn’t just about figuring out who’s going to take over when you’re gone," said David Grau Sr., President and Founder of FP Transitions. "It’s about building a business that will support your long-term vision, and which will continue to serve clients even when you’re not around as much. Whether that means preparing the firm for acquisition or extending ownership to the next generation, continued growth is essential to a successful transition."
When asked specifically about their long-term growth, a majority of advisors fall into one of two camps: those that want to acquire another firm, and those that want to grow their firm organically. About one-third (34 percent) of those surveyed have never acquired another firm, but plan to. An additional one-third (33 percent) said they want to grow their firm by bringing in a new generation. More than half (57 percent) of advisors who have been in business less than five years have never bought a business, but think they can grow by buying other firms.
When asked about valuation, another key factor in the succession planning process, a majority of advisors were optimistic. More than one-third (42 percent) of advisors think their firm is valued at one to two times the last 12 months’ revenue. An additional 43 percent think their firm is valued at two to four times the last 12 months’ revenue.
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By GlobalDataBeyond succession planning, less than half (45 percent) of advisors polled have a continuity plan in place in the event of an unexpected departure or leave of absence. The data suggests, however, that most advisors have given thought to succession planning and continuity planning, even if they do not currently have all of the tools needed to execute a plan/strategy. Of those without a business continuity plan, nearly three-quarters (69 percent) plan to implement one over the next few years.
