Are succession planning and sales planning one and the same, or are they different processes?
Tibergien argued that sales planning and succession planning describe two different processes.

“The notion of planning for an orderly transition from the business is clearly different from an exit from an enterprise,” said Tibergien, noting that one type of planning is ensuring that the business endures, the other ensures that the seller of a firm is maximizing the value – and the liquidity – they receive.

Not creating a succession plan negatively impacts an advisory firm’s ability to sell, said Tibergien, as client and employee retention will be diminished.

Seivert believed that sales planning is just an element of succession planning that is not really distinct from succession.

“By definition, the only time you have succession planning that isn’t sale planning is when you’re giving the business away to a sibling or to a friend,” said Seivert.

Internal succession usually required firms to build some redundancy so a next generation of advisors and support staff are ready to move into their roles when the elder generation retires or steps away from the business. This causes a firm’s human capital expense to rise, and internal successors usually ask for a discount or some other consideration to make taking ownership of the firm more affordable for them.

All told, internal succession can result in 25% to 30% less proceeds for firm ownership than would be generated via an external buyer, said Seivert.

“For many owners of advisory practices, the question has become what multiple can they get for this business versus thinking in terms of whether or not they can build out something that’s enduring,” said Tibergien.

Are advisors over age 60 emotionally and financially prepared to exit the business?
Seivert argued that, by and large, older advisors are not prepared to exit the business.

“On net, this is a population of low financial preparedness that also scores low on emotional preparedness,” said Seivert. “That makes me believe they’re not prepared overall.”

Seivert pointed out that some 80% of advisory firms have $200 million or less in AUM, and many of these have no long-term plans for growth. He also noted that advisors have a handful of major emotional hang-ups when it comes to leaving the industry:

• They love wealth management and helping their clients.
• They love their teams of employees and engaging in intellectually stimulating problem solving.
• They love creating cash flow and enterprise value.
• They don’t have a clear picture of what to do next with their lives.

“Oftentimes, they’re not in touch with their emotions and are in a little bit of denial,” said Seivert.