NEW YORK -- While many financial advisors would prefer to have someone within their practice take over upon retirement, not enough are prepared for the internal succession planning process, Kelli Cruz, the founder of Cruz Consulting Group told advisors here during a presentation on Monday at IMCA's Consultants Conference.


The vast majority of firm owners want a succession plan in place to continue their firm’s legacy and reputation, but only 36% have a process in place to develop an internal successor, Cruz said, citing 2012 data.

“If an internal succession is the number one ideal strategy in order to continue the legacy of your business, then developing your people becomes top priority,” said Cruz, whose firm works with RIAs and broker-dealers. “If you think about the ideal solution being an internal candidate then how that deal gets structured becomes very challenging both in terms of the value of the shared value placed for deal purposes and then the compensation and what that structure looks like in order to make that happen.” 


Cruz, a former director in Advisor Services at Schwab, said that a formal three to five year business plan is essential for advisors gearing up to hand off their practice. She added that proactively recruiting for new talent to take over far in advance -- much like how professional sports teams operate -- will create a more smooth transition.

"Transitional timelines take longer than you think," she said. "Unfortunately there isn't a turnkey approach in this industry."


Whether financial planning practices choose to have an internal or external candidate take over, making the business less reliant on one individual is key, according to Cruz.

"The two key challenges that I see, they really go hand in hand, are expanding ownership and giving up control, because without the ability to do that, you can't create a business that you are dispensable in," she said. "Creating a business in which you become dispensable is a very important characteristic of how you create transferability and ultimately increase the value of your firm."

Read more:

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access