Attention wealth managers: What’s YOUR exit strategy?

Your business

Every year your clients grow ever closer to retirement. The same is true for you. Isn’t it time you planned for it for yourself?


As a successful business owner, you’ve learned to do things in new ways you may not have thought possible before the pandemic challenged the status quo. Working remotely, hosting virtual meetings and using digital tools to serve clients are now as routine as logging into your financial workstation every morning.

With these and other transformational experiences fresh in your memory, you may be well-equipped to contemplate other “what-if?” business- and life-changing scenarios. And if you’re looking for more “gotchas” that you don’t want to have sneak up on you, succession planning is a very real contingency to start taking a little more seriously.

Indeed, planning for retirement may be both hard to imagine and a vague idea you only occasionally think about as an entrepreneurial financial professional. Because time has a way of escaping you when you focus intently on day-to-day duties. Whether you run a solo practice working directly with clients, whether you are part of a team in business together or whether you own a firm that employs any number of financial professionals, it is easy to be caught up in the many important decisions that must be made from minute to minute.

Should your retirement be far in the future or fast approaching, you may want to invest time now to create a succession plan to protect your enterprise, as well as your personal wellbeing and your family’s financial security.

Take your own professional advice

Chances are your clients are well prepared financially for retirement, thanks in part to the planning and wealth management solutions you deliver. But what will happen to your business when you decide to retire?

Like doctors who neglect their own health care needs, many financial professionals fail to anticipate their own retirement until it is a looming event. Few financial professionals have a formal succession plan. And even fewer periodically review and update their plans as their businesses and lives change. (Sound familiar? That’s an apt variation on the investment best practice clients are encouraged to follow regarding their portfolios.)

If you are at a loss regarding how to transition your business or draw an income stream from it during retirement, you are not alone. But where to begin? As Mark Twain famously remarked, “the secret to getting ahead is getting started.”

Once properly motivated, some financial professionals are comfortable taking matters into their own hands, like “do it yourself” investors. Some choose to consult with a business succession specialist, similar to your clients who seek professional financial services from you. And some seek an informed second opinion from an objective industry professional with experience with the topic, like the doctors in the previous example who see another M.D. when they need a personal diagnosis.

Whatever you decide to do—go it alone or get some professional help for yourself—succession planning allows you to take greater control over the course of your professional and personal life. The good news is: you have the ideal experience, skills and tools to address this important task that everyone must face.

Strategic considerations

Knowing your exit options will help you create an appropriate succession plan for your business. Transition risk, tax impact and the valuation of your business are just a few items for consideration when contemplating your own retirement.

Planning for continuity is also important. Protecting your clients with an orderly transition plan and maximizing the value of your business can be accomplished with the proper planning.

Given a two- to five-year lead time, the changeover to your retirement can result in a smooth hand-off of your business. You may have several choices, depending on your unique circumstances.

Establishing a partnership for the purpose of a future sale of your book may be appealing if you’re an individual practitioner. Selling your business to a younger family member or existing partner(s) is a possibility, should you be part of a team. And if you own a firm employing other financial professionals you may want to consider merger and acquisition opportunities with another firm with good long-term business prospects.

How much is your business worth?

That may be the proverbial $64,000 question. There are several ways to determine a selling price for your business. The format you use to calculate a value may depend somewhat on the size of your business and how you plan to monetize it.

Book value  Compares the net value of your business assets with your liabilities. A business that will continue to operate is likely to obtain greater value using this method, compared to a business that will be liquidated.

Straight capitalization Calculates the average net earnings for the business over a specific number of years, divided by a growth rate based on the average rate of return for similar businesses.

Earnings capitalization Determines a value for the business based on historical earnings and how that might be projected forward.

Years purchased Uses a conservative rate to determine the earnings attributed to assets. The balance is attributed to goodwill. Earnings from goodwill are multiplied by the number of years for which goodwill is expected to be valued to a purchaser. The result is then added to the book value to obtain the valuation.

Discounted future earnings  Projects a realistic estimate of future earnings by using adjusted earnings history as a guide.

Transform your vision into a plan for the future

A business owner’s guide to transition planning is a resource available at no cost nor obligation to you from RBC Clearing & Custody. This 16-page booklet follows the life cycle of a business and its owner.

The guide explores a range of subjects unique to business owners, including the development of a succession plan and your transition from the business into your next phase. In addition to offering ideas to consider as you make decisions about your business, it may be suitable to share with your clients who are business owners.

As a leading provider of clearing and custody services, we advise the firms we serve on all aspects of running their businesses, including succession planning. Our network of over 250 wealth management and money management firms across the country may offer a competitive marketplace for transitioning the enterprise you’ve worked so carefully to build.

Please contact us if you have a serious interest in exploring potential business succession opportunities with other firms who may be as committed to your clients’ financial goals as you are.

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