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Success with Succession

The day to day operation of the small RIA takes a lot of time and energy on the part of the adviser. It should not be surprising, then, that most small RIA owners have not put a plan in place for their eventual retirement or an unforeseen event that will terminate their role in the business. Certainly some consideration must have been given to succession in the context of the firm’s disaster recovery plan if the adviser gave thought to the impact of his or her becoming unable to participate in day –to-day operations. But that does not mean that there is an actual viable succession plan in place.

One side of the succession plan is the need to ensure that clients are provided for and that they will be receiving good advice and service from the individual or firm that will take over the business if and when the current adviser is no longer going to be involved. Equally important – if not more so for the adviser – is that on leaving the adviser has income or a lump sum from the established business to provide for his or her retirement and loved ones. The firm should have real value built up over the years of work by the adviser and this is something that should be monetized to benefit that adviser and not left to chance.

The time to do the research and get a plan in place is now – not when you are in a rush or unable to take care of a succession plan. There are a number of possibilities: large firms that buy small RIA businesses, a partner brought on to train and eventually succeed to the business, other small firms that want to expand, and so on. Among the factors to consider in a succession plan are valuation, timing, reputation and ability of the prospective successor, and of course the actual legal agreement.

The one thing the adviser does not want is to leave both his or her future and that of the clients in doubt. 

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