Planning your exit: Creating a succession strategy for your RIA firm

RIAs spend a lot of their careers learning to effectively manage their client relationships, build their businesses, and run effective practices. But once they've successfully done all that, what comes next? How are smart advisors looking to the future to make sure they leave their firms in capable hands? Bill Gettings of Gettings Reed Financial has plenty of perspective to share on succession planning and how to exit the business.

Gettings started his career in 1982 at a Chicago insurance company, helping their agents set up qualified retirement plans. After a few years, he moved on to become a life insurance agent and found a niche in retirement planning with the idea that he'd take his father's practice.

When his father retired, Gettings started an independent brokerage with zero assets outside of the 402(k) clients he brought with him. Over the next 15 years, the firm grew to $200 million in assets under management.

Both sides of a succession plan

Gettings was his father's succession plan. And he's grateful for that for multiple reasons.

“I was fortunate that my dad taught me to recognize the need to have someone come in behind you to take care of your clients and to provide the ideal exit strategy," says Gettings. “But to do that, it means you've got to have somebody alongside you either to learn or that you can groom."

So Gettings found a bright young advisor and added him to the firm. He's currently operating as the firm's chief compliance officer, getting a complete understanding of firm operations and meeting all the clients.“The idea is that the business will slowly shift to him between now and somewhere around my 70th or 72nd birthday," says Gettings.

When to make a plan

While Gettings was very proactive about recruiting and grooming the right successor, not all advisors are. According to Eliza De Pardo, co-founder of FA Insights, less than one-one third of advisors have adequate succession plans. And the best time to plan? It's sooner than you think.

“I think that the longer the runway that you can give yourself when it comes to business succession, the better," says De Pardo. “It's like that old proverb: The best time to plant a tree was 20 years ago, the second best time is right now."

According to FA Insight research, about 9% of owners of RIA firms are planning to exit within the next three years and 23% will retire in four to seven years.

“I really do think that the best time to think about succession is from the very early days," says De Pardo. “You want to be thinking about ideally, how do you want your own role and your position as an equity holder to evolve over the years ahead."

Choosing a successor

Gettings found a successor that suited his needs. They had similar values, and Gettings greatly respected his intelligence and skill. In fact, Gettings was willing to invest heavily to bring the right successor back to Lafayette, Indiana from Manhattan just to set things up the way he wanted. Now, Gettings is still eight years out from retirement, and he's already beginning to transition work to his successor.

But selecting a successor isn't so easy for everyone. According to De Pardo's research, 71% of firm owners believe that character, values, and cultural fit were the most essential ingredients in identifying a successor.

“If you're implementing an internal succession, you will know very early on if those individuals within your business—that pool of candidates—are in fact a cultural fit," says De Pardo.

The second most important factor was a candidate that had a shared vision on the firm's growth strategy.

“As owners, you need to be open to the ideas of others, particularly your future partners," says De Pardo. “But you really want to be sure that the level of aspiration and motivation is there and that you're all going to be on the same page around the expectations for future growth within the business."

In Gettings' case, the more he's gotten to know his successor, see how he works, and introduce him to clients over the past months and years, the more comfortable he is with his decision. “There's a tremendous trust there that, he's been here for four years, he knows what we do," says Gettings. “In many situations he's brighter than I am, so it's a good thing."

Want to hear more from Bill Gettings and Eliza De Pardo? Listen to Beyond the Portfolio season 2, ep. 8: "The Succession Strategist" here or wherever you access your favorite podcasts.

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