A Financial Professional’s Guide to Firm Succession Planning

Key takeaways:

• Business succession planning is not just critical for your business owner clients, it’s also something you may consider for your own financial services business.
• In services businesses like yours, the bulk of the value often stems from your relationships, reputation, and expertise.
• Transition planning is a fluid, ongoing process that should be done well in advance to give you the chance to maximize the value of your firm interest and help ensure your successor(s) can pay you when the time comes.

Why is succession planning important?

03/07/2025 – Your succession plan as a business owner is about more than just retirement—it’s about ensuring continuity, honoring client relationships, and protecting the value and legacy of your practice. A well-crafted plan creates stability, inspires confidence with clients and employees, and ensures your firm lives on, supporting its mission. 

Did you know that only 27% of financial advisors have a succession plan or any formal preparations to transition their business, according to a 2018 Financial Planning Association (FPA) report.¹ It makes sense why you might put succession planning on the backburner—it’s easy to get caught up in the day-to-day aspects of running a successful business advising clients. Knowing how common this hesitancy is, here are a few reasons you might want to make succession a priority: 

• Client Confidence: Clients trust you with one of the most important aspects of their lives—their financial future. A clear succession plan reassures clients that they will continue to receive high-quality service even after you step down.
• Employee Stability: A well-structured transition plan reassures employees, preserves firm culture, and reduces uncertainty about leadership changes. Employees feel more secure knowing there’s a plan in place for the firm’s future.
• Maximizing Business Value: A properly executed succession plan can enhance the value of your practice. Investors and potential successors are more likely to pay a premium for a well-organized, thriving firm with a strategic plan for leadership changes.
• Avoiding Disruption in Service: Without a detailed plan, operational disruptions, client concerns, and diminished morale can jeopardize your firm’s stability. Especially in a profession built on trust, clients need assurance that their finances won’t be left in limbo. 

The bottom line? Succession planning is not just an exit strategy—it’s a best practice in business.

Getting started

There’s no better time than the present! By being forward thinking, you can get the initial planning out of the way and identify areas where you can improve the firm’s ability to run effectively without you to ensure a smoother transition. Procrastination in this instance can be costly. Since your clients value your expertise, a significant portion of your firm's value is likely tied to the relationships you’ve built and your personal goodwill and could diminish if you were to leave abruptly. If  you haven’t adequately planned for a transition of ownership, your firm might not be operating in a state that’s conducive of your successor’s ability to maintain a thriving firm, and your successor’s ultimate profitability. Failing to plan could ultimately reduce the value of your interest in the firm—which, in turn, could delay your exit or leave you with less retirement income than you anticipated.

There are other areas where procrastinating can harm you, too. Advance planning is crucial to ensuring you structure your business, and its impending sale, in a tax-efficient manner with the guidance of your tax and legal advisors. And of course, you want to consider that successors may need a long timeframe to fund the purchase—businesses are no small investment.

Steps to facilitate a smooth transition

#1 Identify a successor with a shared vision

Choosing the right successor is the foundation of your succession plan. Ideally this person will share your vision for the firm, including its culture, values, and commitment to client care. Since you will be handing off your book of business, consider that the successor will need to be appropriately licensed and experienced, regardless of whether they come from within or outside of your firm.

#2 Determine value of practice

Understanding the value of your practice is essential for negotiating a fair transition. There are many ways to value a financial professional’s practice, and the most suitable approach will depend on a variety of factors, like the firm’s revenue model, size and stability of Assets under Management, client demographics and retention rates, profitability and expense structure, regulatory compliance history, market demand, and whether the sale will be to an internal or external buyer. Nationwide offers complimentary informal business valuations, which may be a good place to start.

#3 Create a transition strategy

Once the groundwork for your succession plan is laid out, like the estimated valuation, triggers of sale, and the intended successor(s), the next step is putting everything into a formalized plan. Your plan must clearly outline how the transition will unfold. Consider including elements like a timeline, a client transition plan, legal documentation, financial arrangements, and knowledge transfer, where you document your firm’s systems, processes and client relationship insights  . Making yourself unnecessary to the success of the firm is key to improving its likelihood of thriving into the next generation.

#4 Implement the transition plan

During the implementation of the transition plan, you and your successor will need to formalize the buy/sell agreement and related documents and fund the agreement. You and your buyer may work with an  attorney and tax advisors to determine the type of buy/sell structure that makes sense, have documents drafted, and devise a tax strategy for the sale. It’s important to remember that the implementation stage won’t be complete if the plan is not funded. If there’s nothing set aside to meet the obligation when the time comes to buy the business, the successor might not be able to complete the purchase. This could leave you and your family in a predicament, since you are likely counting on the sale of your interest in your firm to help you retire in the style you would like.

What are the funding options for buyers?

1. Installment note: In many cases, the successor will not have the cash to buy your interest outright, so they may need to pay at least a portion of the cost in scheduled installments after the sale. In many cases, you may prefer to minimize the amount paid in installments because you will be  dependent on the successor’s ability to run the firm profitably to meet the note payments. 
2. Life insurance: The successor could take out a life insurance policy on you, and its death benefit may be used to pay your family for your business interest if you die prematurely. It can also have cash value that offers some financial flexibility to pay you if you sell during your lifetime. 
3. Sinking fund: The successor may gradually build up a fund by making regular contributions in advance of the sale. However, if you die or leave the firm prematurely, the buyer may not have had enough time to build up the sinking fund to an amount sufficient to buy out you or your family. 
4. Outside loan: Traditional bank loans can help a successor come up with needed cash, but they may have to use business assets as collateral. Sometimes, an outside loan may be difficult for the new owner to get, since there is no credit history with your firm. The buyer will also most likely have to use business income to meet principal and interest payments.
5. Cash on hand: In some circumstances, the successor will have enough cash to purchase the firm outright. This may be the case when a highly liquid external buyer, such as a private equity investor, will purchase your interest.

The value of periodic review

Succession planning is an ongoing process, and you’ll need to revisit the plan from time to time to make sure it still meets the parties’ goals and is appropriately funded. A review is also a good opportunity to confirm that you’re up to speed with how the business has changed. You can ask yourself questions like:

• Is this still the plan that I want? 
• Has the value of the business outpaced the funding? 
• Are the key parties involved aware and aligned with the plan? 
• Is the plan in writing and does someone know where to find it?

Looking ahead

Whether you plan to retire soon or years down the line, business succession planning works best when it is initiated well in advance of the triggers that could cause an unforeseen transition. For financial professionals, succession planning isn’t about endings; it’s about continuity and legacy. Whether you envision stepping back into retirement, pursuing new ventures, or mentoring others in the field, a thoughtful succession plan ensures your firm is positioned for lasting success. By identifying a successor who understands your vision, laying out a strategy to prepare your clients and your team, and ensuring all transitions are planned in detail, you’ll not only set your business up for success—you’ll also honor the trust your clients and team place in you. Your future—and the future of your firm—deserves the best foundation possible.