In a regularly fluctuating market, no plan is guaranteed so it's important to give yourself options.

With limited capital available, business decisions that might have seemed in the distant future should be considered now. This is especially the case when it comes to succession planning. With 49% of independent financial practitioners looking to retire in the next 10 years, having a well-thought-out succession plan can grant peace of mind when moving away from the business.1

If this topic sparks some uncertainty, you're not alone. A ratio of approximately 1 in 4 financial professionals looking to transition their business within 10 years do not have succession plans in place.2 Though a decade may seem like plenty of time to sort out the details of how to transition the company, it takes at least this amount of time to plan and develop the best scenario for all involved. Beyond deciding who will take over the business, communicating the change with clients, and creating a timeline for the transition, one crucial aspect of the planning process is financing the deal.

What options are available?

Right now, liquidity in the market is sparse. When advising a client, financial professionals will often encourage them to get a head start on any future plans that require funding to keep their assets stable. When it comes to transitioning away from a financial advisory practice, it's time to listen to the same advice. To get ahead of any significant changes that may come, financial professionals should consider getting a valuation as a starting point to have a figure in mind when considering a deal with a buyer and an understanding of how the book of business may change.

This is also a great time to consider a partial sale that offers a flexible transition with the seller remaining in the business as the buyer familiarizes themselves with the critical details of the business. If there is a clear picture of how a financial professional hopes the business will transition after retirement, there is a better opportunity for the desired successor to qualify for financing if it’s managed over time. Younger financial professionals may not have the personal balance sheet that qualifies for a large loan that buys out the practice all at once. But with advanced planning, the successor could start by buying into a minority share of the practice early. With this tactic, both parties become vested in the growth of the business as the seller begins their transition, which gives the buyer more time to qualify for financing.

It can be intimidating, but there’s no need to do it alone. At The Bancorp, our Institutional Banking team, in partnership with SkyView Partners® supports succession planning for financial professionals through our Advisor Financing program. Institutional Banking works directly with financial professionals looking to plan what’s next for their business and offers fixed-rate conventional loans at competitive rates. Overall, the program provides flexibility to meet what is expected from the buyer and seller and allows for partial-practice sales, tranche sales, and sell-and-remain options. From application to funding, our team offers expert guidance throughout the sale.

Why is this important to talk about now?

Succession planning does not only affect the financial professionals involved in the transition — clients can also be impacted through a deal. Around 37% of the financial professionals that represent approximately $10.4T of industry assets are planning to retire over the next decade.3 By creating a thoughtful plan that offers flexibility, stable business continuity, and proper financing terms, financial professionals can conduct a successful succession for both the business and the clients.

1-3. Cerulli Associates & Commonwealth Financial Network. Transitioning Your Practice the Way You Want. June 2022.