Playing the endgame on your terms

Succession drama is great for TV, but do you want that for your business? A succession plan can help you retire comfortably knowing that your hard work has paid off and what you've built will last. 

An increasing number of RIA founders recognize the need for an exit strategy. In Schwab's 2021 RIA Benchmarking Study, 71% of Top Performing Firms and 54% of all other firms had a written succession plan.1 That's progress, but it means that just under half of small firms could be thrown into crisis if a principal leaves suddenly.

A succession plan offers a roadmap for how to monetize what you've built, how your team can continue to succeed after you're gone, and how clients will get the service they expect. To develop a strong plan that balances all three, consider a few questions.

Illustration stating just under half of small firms could be thrown into crisis if a principal leaves suddenly.

What are your hopes for the firm after you leave?

For many founders, an RIA firm is more than a business. It's a personal triumph. You bet on yourself and won. That's why it can be hard to hand over the business to someone else. 

However, most founders also want to know that their legacy will continue. Understanding what is at the core of your legacy and what kind of person (or people) can carry it on is fundamental to any succession decisions you make.

What do clients and your team want? 

For your business to succeed after you're gone, it will need to retain current clients. Similarly, there's tremendous value in keeping together a team that is experienced, has good relationships with clients, and shares your values. The better you understand what clients and employees want to see in a succession plan, the more successful the transition can be.

What is your business worth? 

Illustration of a scale with a business building on one side and a bag of cash on the other

However you plan to transfer ownership, you'll need to assess the value of your firm and think about how much of that value you want to take with you into retirement.

One note about valuation. Be prepared for an independent assessment to come in lower than you had hoped, especially if your clients are in the last years of life. The chance that their wealth will be divided up or that their heirs will not be future clients can drag down the value of your firm. If your firm's valuation is important to you, you might undertake a strategic planning process that focuses on ways to increase the firm's value.

How much cash do you need when you leave?

How much of the value of your firm were you hoping to spend during retirement? An honest assessment of the money you'll want from your firm will help you focus on the succession models that can most closely match your expectations.

What succession models appeal to you?

There are four basic approaches to RIA succession: selling to an outsider, transferring ownership to existing owners or employees, merging with an existing firm that will eventually take full control, and recruiting an external successor. Each approach offers a range of opportunities and challenges.


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Selling the firm to an outsider A sale is likely to yield the highest dollar value for your firm in the short term. For owners who are ready to walk away and have plans for the value their firm has created, this is an attractive option. The downside is that you have less control over how your firm continues to operate or even if it continues. And if the buyers bring a different culture to the firm, it could upset clients and staff. You can try to write stipulations into the sale agreement to prevent some disruption, but that can complicate negotiations and scare away some buyers.


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Transferring ownership internally
Many RIA owners find internal succession both attractive and daunting. An internal successor is likely to carry forward the firm's culture and values. They're also familiar to clients and will be more likely to project a sense of business-as-usual during the transition. However, it's often difficult to hire a successor because it can mean many years of investment in a person who might not ultimately work out or who might decide they want something different.

Monetizing the business can also be a challenge. Can a potential successor or successors slowly buy out an owner's shares in the company and are they willing to? Do you give equity in the business as compensation? And is equity available only to certain people or do you want to spread ownership throughout the firm? Complicating these questions is the time factor. Have you planned far enough ahead for an internal successor to both take over day-to-day management and offer you the value you need from your firm?


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Merging with another firm
A merger can sometimes accomplish both short- and long-term goals. For example, if your firm doesn't offer estate planning expertise and many of your clients need estate planning services, you might merge with a firm that does have that expertise to better serve your existing clients and attract new clients. That's the win-now side of the transaction. If the principal or principals at the firm you're merging with are younger and entrepreneurial, you might also have a successor who can continue to serve your clients after you're gone.


Icon of an office building an a person

Recruiting an external successor
If your firm doesn't have an obvious successor already on staff and a sale or merger is not what you want, you might be able to recruit a successor from another firm.

Ideally, an external successor will have extensive experience and a shared vision for the firm. Like an internal succession, you'll need to find a way for your successor to gain shares, either by purchasing them, accruing them as compensation, or both. The challenges of an external successor are similar to a sale. Staff members might not be happy with this new leader or clients could fail to connect with them. Culture fit is important and can take time. But unlike a sale, where you transfer ownership and walk away, you may be forced to deal with the headaches of a mismatched successor over many years and could even see the value of your business decrease if clients and staff are unhappy.

The perfect thing to do is to make a plan

There's no such thing as a perfect succession plan. What's important is that you have thought through various scenarios for how your succession might go and put into motion the foundation for a successful transition. 

Many advisors find that succession doesn't quite play out how they thought it would, but by starting early they're able to adapt to challenges and ultimately complete a succession process that benefits everyone.

What you can do next


1 Top Performing Firms are those that rank in the top 20% of the Firm Performance Index. All other firms are those that rank below the 80th percentile of the index. The index evaluates all firms in the study according to 15 metrics to arrive at a holistic assessment of each firm's performance across key business areas. 2021 RIA Benchmarking Study from Charles Schwab, fielded January to March 2021. Study contains self-reported data from 1,340 firms.

2021 RIA Benchmarking Study from Charles Schwab, fielded January to March 2021, contains self-reported data from 1,340 firms that custody their assets with Schwab or TD Ameritrade. Schwab does not independently verify or validate the self-reported information. Participant firms represent various sizes and business models.

Past performance is not an indicator of future results.