Navigating the Transition Planning Process

Once planning for the “what ifs” is handled, it’s time to consider other future events. If an advisor’s primary goal is to continue working as long as possible, transition planning may be more appropriate than succession planning, which is often integral to the planning and preparation for a practice sale.

In fact, one can view transition planning as a process that aims to extend a practice’s income stream; succession planning can be seen as part of a process that aims to capture the enterprise value of a practice. For many advisors, the financial and lifestyle rewards of having income over a longer time span may be greater than an equivalent cash value of practice sale.

There are many directions transition planning can take:

If your practice already is an ensemble and consists of younger advisors whose investment styles and personalities mesh with your own, consider a formalized agreement through which your B, C, and D-level clients are handled as part of a team with one or more of your ensemble members.

Revenue from this teamwork can be pooled with younger member(s) receiving a larger share, and doing more of the work, over a specified time period that matches your plans. Over time, you may wish to transition your A-list clients to the pool.

If you are a sole practitioner, consider adding a junior advisor and working out an arrangement similar to that above. Yes, finding someone with whom you are compatible isn’t easy, and many advisors have been disappointed when trying to find a junior version of themselves. But it is possible, and to help increase the odds of success:

Advisors, perhaps to a greater degree than the clients they counsel, are aware of longevity risk. But the “risk” that today’s near-retirement generation of advisors likely will live longer than anticipated and require more financial resources also presents great opportunities.

For many advisors, creating plans and a support system that enable them to continue working, serving their clients, and extend their earning years may represent a more desirable and viable alternative than selling their practice. While succession is right for some advisors, transition may be right for others.

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