An advisor seeking options for his or her practice can also consider merging it with another or selling it outright. But these maneuvers raise questions about whether the new firms are a good fit and have the same business philosophy, things that are very important for advisors trying to ensure continuity for their clients. "The proper due diligence for assessing the level of match must be performed," says Martin.
In either case, you need to get an appropriate valuation for your practice.
"Among the most common mistakes is that financial advisors have an inflated perception of value around which they plan the transition," says Mark Tibergien, chief executive officer and managing director at BNY Mellon’s Pershing Advisor Solutions, based in Jersey City, N.J. "Price is only one component of the equation. The terms of the deal, which often dictate the final price, are based on what actually transfers."
It's not the present value that matters, after all, so much as the future value. And that can be directly linked to your clientele. Will good clients stay after the transition? Are your clients younger or older?
It's important, too, to make a clear distinction between succession planning and sales planning. "One is the orderly transition of clients and management, while the other is the transfer of ownership," says Tibergien. "Whether planning for succession or sale, advisors need to be both emotionally and financially ready."
Being emotionally ready may sound obvious, but it can take you by surprise. Advisors, he says, can be like any other business owners. They're concerned about loss of control, what they will do when they're not working, and whether they'll have enough money in retirement.
"The most common mistakes include not spending time on the emotional side of the process," says Dogra, at Third Seven Advisors.