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There’s Another Succession Planning Option

May 4, 2017

Advisors spend their entire careers helping others plan for retirement and perhaps creating a legacy to pass on their wealth. But when it comes to their own retirement the numbers show a majority of advisors don’t have a plan for what comes next for their businesses.

Not having a succession plan is fine if an advisor is content to close shop when he or she is ready to call it quits and has no expectation of deriving further revenue from the enterprise. Many advisors may expect they will be able to sell their business for a profit. Whether it’s by handing off the business to an internal successor or selling it to an outside buyer, one of the keys to a successful transition is maximizing the firm’s value. Unfortunately many advisors have a fundamental misunderstanding about where their true value lies.

Many advisors believe their value is tied to their investment management expertise. In reality, according to a 2013 study from Vanguard, clients say that while investment expertise is an important factor in driving what they perceive the value of their advisor to be, it’s not the most important. It’s not even the second-, third- or fourth-most important. What clients say matters most is an advisor with whom they have a good relationship, who helps them focus on the long-term, and who provides solid guidance. Further, a study from consulting firm FP Transitions found that advisors who focus more on client management than investment management have an annual client growth rate of 5% and an annual asset growth rate of 18%. Those who focus more heavily on investment management are, frankly, less successful. They have a 3% annual client growth rate and an 11% annual asset growth rate.

The data make a compelling case for advisors to consider outsourcing some of their investment management capabilities -- not merely to make their practices more efficient, but as a tool for maximizing their firm’s value for succession planning. But not all outsourced investment options are created equal. Advisors need to understand the qualities that will put them in the best position. Any outsourced option should adhere to the following requirements.


The major benefit of outsourcing investment management is it lets advisors more effectively and efficiently serve their clients – and scale their practice. With less time spent on investments, advisors can spend more time guiding existing clients, identifying and nurturing new clients, recruiting new advisors to join their team and improving overall business operations. Advisors should partner with a firm that gives them the flexibility to change how they can work together as the advisor’s business and client needs may change. Many “all-in” solutions offer limited investment options and don’t give advisors much flexibility to bring other investments to their clients.

By seeking out an investment partner that provides flexibility, advisors will be acting in the best interest of their clients and truly able to maximize their value for succession planning. They will get the benefits of scalability that outsourcing provides without locking themselves in to a singular solution that may not be as attractive to a potential buyer or successor.


One of the biggest fears advisors and their clients have about outsourcing investment management is that it will drive up fees. In the current investment environment, where there is increasing pressure for lower fees, these concerns are heightened. While some level of fee increase may be incurred, advisors need to be very clear on what fees clients are paying now and communicate the extra value their clients will receive. Ideally, they’ll identify an investment partner that can provide them with a range of investment options that offer solid value. Advisors who can deliver competitive fees while also outsourcing can protect the long-term value of their firm.


Investors are always seeking higher returns. For advisors, dealing with these demands comes with the territory. But it is an advisor’s job to remind clients that potentially high rewards generally come with high risks and financial goals are more likely to be achieved with a long-term focus. With that in mind, advisors need an outsourced investment management partner with a proven strategy that properly balances risk and reward for long-term performance. An investment manager that can help protect against market volatility and preserve future performance is a preferable choice for both clients and the firm’s valuation.

There are many factors that go into effective succession planning, but making a shift in who manages investments is one that too few advisors consider. While it may be more comfortable for advisors to look to other areas as they begin to map out their succession plan, outsourcing their investment management can have a significant impact in helping them grow their business and maximize their value. It might be succession planning’s best-kept secret.