Exiting on Your Own Terms:

10 Dangers of Not Having an Exit Plan as a Financial Advisory Practice or Firm Owner. 

For a financial advisory practice or business owner, it is incredibly important that the process of developing an exit or succession plan be executed strategically and with great care. This is done not only to avoid pitfalls, but to maximize the success of all the components that go into handing off one’s legacy. The success of an exit plan is defined differently by every individual. Some of the most common components, however, are a maximized monetization of the business, the assurance that the clients will be cared for, the ability to control the timetable of the exit, and the ability to mitigate the risk involved in such a process / transaction. As a general guideline, it is advisable to begin the exit planning process three years before exiting.

If you begin developing an exit plan, this does not always mean you are intending to exit anytime soon. Many advisors enjoy their vocation and would like to stay in the business as long as they can. To remain competitive in their efforts to acquire advisory firms, many purchasers have begun offering advisors the ability to sell their business but still maintain control of their retirement timetable. In some cases, a contract will function like a put option. This gives the exiting advisor control and flexibility over their exit date. The economics of the transaction will have already been determined as well.

In another article (Leaving Behind Your Legacy) we examine the many benefits of having a formal exit plan. This edition, however, will focus on ten of the dangers involved in not having an exit plan.


Danger #1: Exiting caused by pressure.

There are many outside circumstances that can place pressure on an advisor or firm owner to exit their practice. Whether it be the health of a loved one, impatience on the part of other stakeholders, or an unforeseen change in the wealth management industry, pressure caused by outside circumstances can have many negative effects on the success of an exit. Depending on the nature of the pressure, it can reduce negotiation power, inhibit objectivity, or simply ruin the gratification of placing a capstone on one’s legacy. A vast majority of these risks can be mitigated by a well thought out and formalized succession agreement.


Danger #2: Forced timetables.

Often as a direct result of an outside pressure, an advisor may be pressed to leave their business long before they would like to. On the other hand, it can sometimes come to the point where an advisor or firm owner wants or needs to retire, but there are no qualified (or desirable) parties to sell to. Having an executed and formal agreement with the right partners that addresses how these types of scenarios will be handled, is the best way to maintain control of the timetable.


Danger #3: Incurring sunk cost.

Most advisors know the risks associated with not having an exit, succession, or continuity plan. However, many advisory professionals believe they have mitigated that risk by having an informal agreement with another party. Tragically, informal agreements are often unknowingly filled with undefined parameters, unspoken expectations, and unattainable monetary goals. Because of this, you can spend significant amounts of time and resources on the development of a plan that will ultimately fall part and thus mitigate none of the risk.


Danger #4: Undervaluation of the company.

Starting the exit planning process before it is absolutely necessary can strengthen the seller’s position greatly. This allows for time to be spent finding the right partners who are willing and able to fully monetize the advisor’s business with a competitive economic structure.


Danger #5: Paying too much in taxes.

Depending on the current or impending political climate, it can be significantly advantageous to set up the sale of an advisory practice in such a way that navigates and lessens the impact of taxation. Naturally, this factor will continue to evolve and therefore it is advisable to seek counsel from an expert who has navigated numerous transactions of this nature before.


Danger #6: Losing control.

By its very nature, controlling the future is the sole purpose of any type of plan. The financial advisory industry exists to help individuals, families, and businesses plan for the future, execute that plan, and thus maintain a certain level control over their future. Having a specific, strategic, and time bound plan for the future of one’s legacy, is no different.


Danger #7: Unrealized goals.

Building on the previous point, the purpose of any of plan is to achieve the goals that are most important to the individual. The more strategic the plan, the more likely it is that all of goals are realized. It is also important to note that a clear and methodical mapping of one’s goals and desires, is pertinent to the success of the plan. It is also advisable to do this step as early in the process as possible.


Danger #8: Unnecessary stress.

If an outside pressure to make an exit does occur, the stress of an expedited and unplanned transaction of this magnitude, can have a significant negative impact on the health of the advisor and their family. On the other end of the spectrum, the passing of the baton to a trusted partner is intended to be a joyous, bittersweet, reflective, and celebratory occasion. A formal plan makes it so that your focus can be on what truly matters.


Danger #9: Dissipation of the legacy.

If one were to boil down all of the previous points into a single piece of advice for advisors and firm owners, it would be this: “Prepare your legacy to mitigate the risk of dissolution. It is your business, and your hard work deserves to be rewarded accordingly.”


Danger #10: Losing confidentiality.

Lastly, depending on the circumstances, the process of choosing a suitor often requires the upmost discretion. If an external pressure to exit arises, it becomes almost inevitable that staff members, colleagues, or even clients may begin to have questions or talk amongst themselves. If confidentiality is not maintained, staff members and clients may begin to worry about the future and relationship with colleagues can be damaged.



The purpose and design of an exit or succession plan is closely akin to a financial plan that is prepared for an advisory client. They are both created to help mitigate risk, maximize returns, ensure a legacy, provide peace of mind, and make the journey enjoyable. 

To quote one of the most witty and beloved baseball players of the mid-twentieth century, whose legacy includes ten World Series Championship victories, eighteen All-Star Game appearances, three American League MVP awards, and a Purple Heart that was earned at the beaches of Normandy:

“If you don’t know where you are going, you’ll end up someplace else.” – Yogi Berra





If you are contemplating a transition, a merger, or a sale of your advisory business, reach out to us and talk with one of our qualified experts. For a complimentary and discreet consultation, or to simply learn more, email us at info@AdvisoryDNA.com or visit us online at www.AdvisoryDNA.com

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