Passing the torch: Succession planning for financial advisors

Over the next ten years, it's estimated that more than 100,000 financial advisors plan to retire. This represents over one-third (38%) of the current advisor headcount. These retiring advisors currently manage a significant portion of the industry's assets, estimated at 42% of the total.¹

You’ve likely spent your entire career focused on protecting others’ futures, wealth, and goals—often at the expense of your own. While stepping away may still feel like a distant concept, now is the time to take your own advice and plan ahead. Succession planning isn’t just about retirement—it’s a critical component of smart business strategy. It safeguards your clients, supports your team, and preserves the legacy you’ve worked so hard to build.

Whether you're just starting your career as a financial advisor or are a seasoned professional, this guide outlines the essential elements of effective succession planning so you can face the future with confidence and clarity.

The importance of succession planning for your advisory practice

According to the Exit Planning Institute, more than half of business owners—56%—didn’t have a formal succession plan in place as of 2023. If you’re in that group, you’re not alone. But it’s worth considering that succession planning isn’t just about preparing for retirement—it’s about strengthening your business now. Having a clear plan in place reassures your clients that they’ll continue receiving the same high level of care, even when you’re no longer at the helm. It also helps keep your team grounded by showing them you’re thinking about their long-term future, which can reduce turnover and boost morale. Just as importantly, it ensures your clients and your business are protected if the unexpected happens (e.g., you are forced to step away sooner than your planned retirement).

Financially, a defined succession strategy can increase the value of your practice and make it more attractive to potential buyers or partners. Buyers are more likely to invest in a business with a clear roadmap for leadership transition, client retention, and operational continuity. It signals that your practice is well-managed and prepared for the future—reducing perceived risk. In many cases, it can also lead to a smoother, faster transaction process and stronger negotiation leverage.

5 steps for financial advisor succession planning

While no two businesses are alike, here are some general elements to keep in mind as you think about setting up a successful succession plan.

1. Clarify your goals and timeline

• What’s your vision for the transition? Will you retire gradually, sell the firm, or pass it on to a colleague or family member?

• When do you want to step back? Defining a broad timeline allows you to plan and adapt as needed.

• What are your financial priorities? Financial planning considerations such as your income needs, estate plans, and retirement goals might guide the valuation and negotiation strategies.

2. Identify potential successors

• Internal candidates: Assess your current team for rising leaders. Consider their development needs and create a mentorship or training pathway.

• External candidates: Look outside your firm for advisors or acquirers who share your values and client-first philosophy. Leverage industry networks and associations to find the right fit.

• Consider fit: Your successor should ideally already be a great fit for your practice’s values and culture. Alignment with your practice’s service model and investment philosophy, as well as strong relationship management skills, will go a long way to help the transition be a smooth one.

Among advisors who do have a succession plan, the majority, nearly 71%, intend to pass their business on to someone currently working within their firm.²

3. Build a detailed transition plan

• Client communication: Plan how and when to introduce the transition to clients. Clear, empathetic communication is key to retaining their trust.

• Team integration: Set expectations, define new roles, and encourage open dialogue to ensure a smooth internal transition.

• Operational transfer: Document processes, workflows, and client data to minimize disruption.

• Legal and financial framework: Work with professionals to draft agreements, understand tax implications, and comply with regulatory requirements.

4. Establish a practice valuation

• Know what drives value: assets under management (AUM), revenue, client demographics, profitability, and retention history all matter.

• You may also want to consider tracking and sharing:
  • Percentage of recurring revenue: This metric showcases the stability and predictability of your income stream. A high percentage of recurring revenue (e.g., from ongoing management fees) signals a strong and reliable business model, making it highly attractive to a successor.
  • Growth rates (client acquisition, assets under management, revenue): Showing consistent growth trends over time highlights the dynamism and potential of your practice. Whether it's the rate at which you're acquiring new clients, the growth of your assets under management (AUM), or overall revenue growth, these figures illustrate the momentum of the business and its capacity for future expansion.
  • Retention/renewal rates (client retention, plan renewal): High retention rates indicate strong client satisfaction and loyalty. This is a powerful indicator of the quality of your service and the strength of your client relationships.

• Hire a qualified valuation expert. Organizations like the AICPA’s forensic and valuation services section (aicpa.org/fvs) can help you get started.

• Ask yourself:
  • Can I better leverage technology to achieve scale?
  • Where does your practice stand with some of your clients? Are you retaining your clients?
  • What adjustments do you need to make to increase profitability and growth?

5. Build a bench of external specialists

• Succession planning is yet another example of a situation where a team-based approach increases your chances of success. Leaning on external specialists can help ensure you are addressing everything that needs to be addressed and that you are prepared for unexpected bumps in the road.

• Succession consultants: Provide strategic insight and can mediate sensitive conversations specific to financial advisor succession planning.

• Legal counsel: Draft or review contracts, agreements, and ownership structures.

• Tax professionals: Help you understand the financial impact of your exit strategy and structure the deal accordingly.

Succession planning is an extension of client service

Your legacy is built on relationships and trust. Succession planning ensures those values live on even after you’ve stepped away.

Whether years away from retirement or just beginning to think about the future, taking intentional steps now will protect everything you’ve built and give your clients—and you—peace of mind.

Transitions can be emotional—for both advisors and clients. Clients may feel uncertain about what lies ahead, while advisors often wrestle with letting go of long-term relationships. That’s why it’s critical to build trust early with your successor and to keep your staff informed every step of the way, so they can confidently support your clients through the transition.

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