The Pandemic Has Brought Advisers’ Succession Planning to the Fore

The COVID-19 pandemic has made it clear that business owners need to have a continuity plan for their firms—and that includes retirement plan advisers, industry insiders say.

“The pandemic has certainly heightened the sense of urgency in all private businesses on succession planning,” says Alicia Goodrow, a partner at Culhane Meadows who focuses on succession planning. “Businesses, including retirement and wealth management planning businesses, owned by healthy, engaged people in their 40s, 50s and 60s are seeing the very real possibility of debilitating illness or death as a high-risk factor that applies to them and their businesses. Clients are beginning to ask, quite bluntly, what plans their senior advisers have made.”

While Goodrow has seen some retirement plan advisers making plans to retire in the next 24 months, she adds that “with the market generally trending up and the uncertainties around estate planning and taxes, most planners who were considering retirement in 2021 are waiting a couple of years to take advantage of the activity in the market right now. Many clients are relying more heavily on their planners in these times of uncertainty, so business is good.”

John Anderson, managing director and head of practice management solutions at SEI, says he is not seeing many retirement plan advisers leaving the business yet.

“But what I find most times when people are coming out of a major event, be it a stock market disruption or, now, a pandemic, is that people tend to reassess their business,” Anderson adds. “In all likelihood, some advisers are going to say to themselves, ‘Is it time to move on and do something different or retire?’ Then there may be those who, because of the current inability to conduct in-person meetings or training with sponsors and participants, will reassess their business model. For those who had wanted to capture IRA [individual retirement account] rollovers from retiring participants, this is now more difficult because it is no longer in person. Those advisers who have fully embraced technology have done much better, and these are the ones who are likely to remain in the industry.”

For those retirement plan advisers looking to sell their business, Goodrow suggests they form a mini “think tank” of outsiders, including their attorney and an investment banker, if the practice is large enough, to help the adviser value the business and develop an exit strategy. This group can help the adviser determine if he wants a cash deal or if he would work with an “earnout or seller-financed transition,” which, she warns, can potentially be risky. The adviser could also consider selling to a pool of employees or merging with another practice, Goodrow says.

Anderson says advisers who are looking to exit the business should examine their firm and value it fairly. “That will give them a better understanding of its value and what the discount might be,” he says. “Many advisers think their practice is worth more than it really is.”

Mergers and acquisitions (M&As) among retirement plan practices and registered investment advisers (RIAs) continue to be strong, says Amy Philbrook, head of core market sales at Fidelity Workplace Investing. “There are a lot of motivated buyers and sellers out there, and private equity [PE] continues to play a big role in this space.”

Also, because so much client service is now being handled virtually, “those advisers looking to hand their business down to a successor or someone with a local tie now find their market has widened,” Philbrook says.

Like Goodrow and Anderson, Philbrook says an adviser looking to exit the industry now should consider retaining a consultant to help them value their business and assess the potential market for the sale. For those who are planning to exit the business a little further down the road, perhaps in three to five years, “they have the time to get up to speed on the market and potential markets and should also evaluate their firm’s value drivers, increase them and do networking,” she says.

If a deal is struck, it is critical for advisers to ensure technology and service models are in place to ensure a smooth transition before informing clients. “You need to have the infrastructure in place first,” Anderson says. “You also need to communicate the change as a positive. Point out the enhancements that the buyer will bring to the table.”

Philbrook agrees: “Underscore the core values around the client experience you have in common with the business and tell clients what they can expect in terms of continuity and increased value—how the transition will improve their client experience and why they are incredibly fortunate to be handed off to a partner.”