When it comes to acquiring the existing business of an exiting advisor, there are two possible ways to do this:
- Your classic and well-known Exit and Succession Plan
- The more uncommon Continuity Plan
Exit & Succession Plans
An Exit Plan is what practicing financial advisors typically think of when it comes to acquiring another advisor’s book. An Exit Plan most usually involves an outside party purchase a retiring advisor’s book of business.
A Succession Plan is internal, with the exiting advisor slowly transitioning out of his/her business, transitioning ownership and responsibilities to a junior planner. This means that an exiting advisor hires a younger planner to work under him/her. The exiting advisor will then sell small chunks of his business to the junior advisor over time. At the risk of being redundant, Succession Planning firm FP Transitions defines a Succession Plan as
gradually transitioning ownership and leadership internally to the next generation of advisors.
Regardless of how either an Exit or Succession plan takes place, it is a relatively gradual transition. Clients are introduced to the younger advisor or acquiring firm over time. This occurs in the presence of the exiting advisor. You can hire a firm to help you with this process; however, it is not inexpensive.
Continuity Plan
If a Succession or Exit Plan takes place slowly over time, then a Continuity Plan is the opposite, occurring quickly. A Continuity Plan may also be referred to as a Contingency Plan, or as death and disability planning. In a Continuity Plan, the plan only ever gets executed in the event of death or disability on the part of the exiting advisor. Consider a Continuity Plan akin to a springing power of attorney. Leveraging FP Transitions’ definition:
A continuity plan outlines what happens if there is an unforeseen event and the owner(s) is no longer able to work.
It has been suggested (I think it’s Grau) that a Continuity Plan is the first step in creating a Succession or Exit Plan. This is because creating a Continuity Plan is more urgent than crafting a Succession or Exit Plan. Creating a Continuity Plan is also vastly easier. Our own firm crafted a Continuity Plan relatively quickly. A short contract of no more than a handful of pages was all that it took to put a Continuity Plan in place.
Practice Emergency Plan
If the three above weren’t enough – there is one more option – and a sort of alternative to the Continuity Plan. In a Practice Emergency Plan (PEP), FP Transitions offers to list your investment advisory practice for sale in the advent that you become disabled or die prematurely. You can check out an FAQ for FP Transitions’ Practice Emergency Plan here. One interesting note about FP Transition’s PEP FAQ is the suggested payment terms:
- 25-35% cash down payment
- Adjustable note paid over 4 – 6 years
Start with a Continuity Plan
Not one to turn down good advice, this is where I am starting, putting pen to paper on a Continuity Plan, before slogging through the longer process of a creating a Succession Plan. With a Continuity Plan in place, I will work to create an Exit Plan with those very same advisors.