For professional adviser use only

Have you planned your retirement exit strategy?

A recent survey1 has recorded the average age of an adviser currently to be in their mid-50s and indicates that around 5%, a total of 1,650, have immediate plans to retire and another 16%, a total of 5,280 advisers, hope to retire in the next five years. Around 7% of these firms admitted to having no exit plan in place.

The exit options that may currently be considered by advisers are limited. These being:

  • Building an inhouse succession plan
  • Selling your business to another local advisory firm
  • A consolidation deal for your business
  • Winding down your business

Whichever route you opt for is likely to require you to uproot many elements of your existing business and could also be to the detriment of your clients, as they may have to dis-invest and re-invest. Having spent years looking after your clients, you are likely to want the least disruptive route possible, that reflects both your own hard work and protects your clients’ interests. So, let’s look at the four options in more detail:

Building an inhouse succession plan

If you are planning to use an inhouse succession plan to pass your business on at retirement, you will want to ensure that your advisory skills, talent and professional reputation live on within the firm’s culture and remain part of the firm’s professional identity for years to come.

It is not necessarily a quick process, even where an internal person has been identified to take over, they may not be ready (years of training may be involved) or they may not even want to take on the role. If this is the case, there is the added problem of trying to recruit someone externally who you consider would be suitable to take over the business.

Selling your advisory business

You may consider the sale of your business to another firm or a partner/colleague within your firm to be an attractive option. Whilst it might be the favoured route, and one that seems the simplest option, it won’t necessarily be as easy as selling a house. It can be a long and complicated procedure. With this in mind, timing is critical. The point at which you want to sell, won’t necessarily be the time at which your ‘perfect’ buyer wants to purchase your firm. There are stories of firms taking five years or more just to find a buyer willing to purchase, this is before the additional time it then takes to complete the process.

There are many other things to consider too, including:

  • What exactly is for sale? Is this just shares in the business, or the trade and assets
  • How do you find the right buyer? It’s not as easy as calling your local estate agent
  • How do you set a value for your business? Unlike a house whereby comparing values is relatively straightforward, will a buyer be looking at profitability, funds under management or another measure?
  • How would/could your in-house partner raise the capital?
  • How do you ensure continuity for clients? After having established relationships over a lengthy period, you will want to ensure that your clients receive a good, ongoing service that is of value for them. However, this desire may not fit with your hope of securing a healthy price for your firm.
  • Can the buying firm integrate your clients into its own back office systems, with minimal disruption?
  • What will the costs of the sale be? There will be solicitors’ and other fees
  • At what point will the succeeding adviser wish to retire?

Selling to a consolidator

Consolidators are looking to buy, you’re looking to sell – it seems the perfect option. A quick session on Google and you may think otherwise! The first point to make is that this is unlikely to be an option for a one-person advice firm or smaller business, you’re likely to be too small for them to be interested. They want to grow their funds under management, quickly. Bigger firms are therefore going to be more appealing to them.

Selling to a consolidator prompts many of the same questions as selling to another advisory firm. However, one of the main differences is that a consolidator will be much more experienced and knowledgeable, and they will probably have their own process in place. You will also need to make sure that you understand fully what will happen to your business and how much you will receive for the business, when you will receive it and what – if any – caveats there are. Of the criticisms directed at sales to consolidators the main one appears to be the disruption it causes clients.

Winding down your advisory business

Let’s be honest we all hope not to be in this situation, but you may have to consider winding down your business if there is no obvious buyer or successor. Or perhaps where the business is not currently profitable and is unlikely to return to profitability. The FCA provides guidance on how to produce an orderly wind-down plan should the need arise.

Winding down any business can be a lengthy and complex process. This is even more so for IFA businesses, as it needs to be done in a detailed and orderly way according to FCA guidance. With this option, the question, ‘what happens to my clients?’ is perhaps even more relevant. Will they feel you’ve left them in the lurch? Will you feel obliged to recommend another adviser? Will clients persuade you to give advice even after you’ve quit?

None of these options are ideal. With so many advisers looking to retire or sell over the coming years, the industry needs to work harder at developing other, more palatable choices.


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