Succession planning is often misunderstood as a one-time event—a moment when an RIA owner transitions leadership and exits the firm. In reality, succession is best viewed as a process, not a single event. It is a strategic, ongoing effort that requires continuous planning and preparation over many years. For RIA owners, the stakes are high: a well-executed succession plan not only ensures the firm’s longevity but also enhances its value, whether you ultimately transition internally or sell to an external party.

In this post, we address the process of succession and the role of internal resources such as next-generation leadership, as well as how investing in these areas increases your firm’s value—regardless of whether you choose an internal or external transition.

Succession as a Process: The Long-Term Perspective

Succession planning is not a task to complete only when retirement is imminent. It is an ongoing process that evolves as your firm scales and leadership needs change. Treating succession as a single event—such as a sudden sale or abrupt leadership change—can leave your firm vulnerable to operational disruptions, client attrition, and negative impacts to the firm’s valuation.

The most successful RIAs begin succession planning years, if not decades, in advance

Our experience suggests that the most successful RIAs begin succession planning years, if not decades, in advance. They integrate it into their business strategy, ensuring that leadership development, client relationship management, and operational continuity are consistently prioritized. This approach mitigates risks and positions the firm for a smoother transition when the time comes.

For example, a firm that waits until the founder’s retirement to address succession may face a leadership vacuum, leaving clients uncertain and staff without clear direction. In contrast, a firm that has nurtured next-generation leaders over time can seamlessly transition responsibilities, maintaining client trust and operational stability.

The Role of Internal Resources: Next-Generation Leadership and Beyond

At the core of any successful succession process are the internal resources that sustain the firm’s future—chief among them next-generation leadership. Developing a pipeline of capable leaders is not only about filling roles; it is about preserving the firm’s culture, values, and client relationships.

However, next-generation leadership is not the only internal resource that matters. A robust succession process also involves:

• Client relationship continuity: Ensuring clients remain confident in the firm’s future, regardless of who is leading.
• Operational infrastructure: Building systems and processes that can function independently of any single individual.
• Talent development: Investing in staff at all levels to create a deep bench of skilled professionals.

These resources not only prepare your firm for an internal transition but also make it more attractive to external buyers. A firm with strong leadership, loyal clients, and scalable operations is a valuable asset, whether you are passing it to the next generation or selling to a strategic acquirer.

Enhancing Firm Value: The Universal Benefits of Succession Planning

The steps you take to prepare for an internal transition can also increase your firm’s value in the eyes of external buyers. In other words, investing in succession planning yields benefits regardless of the exit path you ultimately choose.

The steps you take to prepare for an internal transition can also increase your firm’s value in the eyes of external buyers

For internal transitions, developing next-generation leaders ensures that your firm can continue to thrive without you. These leaders are already ingrained in your firm’s culture and client relationships, reducing the risk of disruption. This stability is critical for maintaining profitability and growth post-transition.

For external sales, buyers (whether they are other RIAs, consolidators, or private equity firms) look for firms with strong leadership benches, predictable revenue streams, and scalable operations. A firm that has invested in succession planning meets these criteria, often commanding a higher valuation and more favorable deal terms.

Practical Steps for RIA Owners

How can you begin treating succession as a process rather than an event? Here are actionable steps to integrate succession planning into your firm’s ongoing strategy:

1. Start Early: Begin succession planning at least 5-10 years before you anticipate stepping away. This provides ample time to identify and develop future leaders.
2. Identify and Mentor Next-Generation Leaders: Look for individuals within your firm who demonstrate leadership potential. Provide them with mentorship, training, and opportunities to take on greater responsibility.
3. Expand Equity Ownership to Key Employees: Consider offering equity stakes to key employees, particularly those identified as next-generation leaders. This aligns their interests with the firm’s long-term success and can be implemented gradually through structures such as stock options, restricted stock, or other equity-linked incentives.
4. Document Key Processes: Ensure that critical operations—from client onboarding to investment management—are well-documented and not reliant on any single person.
5. Engage Clients in the Process: Gradually introduce next-generation leaders to key clients to build trust and ensure continuity.
6. Regularly Review and Update Your Plan: Succession planning is not static. Revisit your plan annually to account for changes in leadership, market conditions, and firm growth.

Conclusion

Succession is not a distant event—it is a process that should be incorporated into your firm’s operations. By investing in next-generation leadership and other internal resources, you are not only preparing for an internal transition but also making your firm more valuable to external buyers. The benefit of this approach is its versatility: whether you choose to sell the firm to internal buyers or an outside party, your firm’s value is enhanced.

About Mercer Capital

We are a valuation firm that is organized according to industry specialization. Our Investment Management Team provides valuation, transaction, litigation, and consulting services to a client base consisting of asset managers, RIAs, trust companies, broker-dealers, PE firms, and alternative managers.