For the investment management industry, succession planning is not just a strategic necessity—it’s an important driver of firm value.

As the wealth management industry evolves, with an estimated 40% of RIA founders approaching retirement age, effective succession planning can mean the difference between a thriving firm and a diminished valuation.

At Mercer Capital, we’ve seen how well-executed succession plans preserve AUM, enhance enterprise goodwill, and position firms for premium valuations in both internal transitions and external sales.

Here’s how RIAs can navigate succession to maximize value in 2025 and beyond.

The Valuation Risks of Poor Succession Planning

Succession planning has a direct impact on RIA valuations through its effect on AUM retention and goodwill.

Many RIAs rely heavily on personal goodwill—the relationships individual advisors, often founders, maintain with clients.  If these relationships are not transitioned effectively to the next generation of advisors (G2), firms risk significant AUM attrition.  For example, a 2024 study by Cerulli Associates found that 20-30% of clients may leave an RIA following a founder’s retirement if no succession plan is in place, potentially reducing firm revenue by a similar amount.

Moreover, the distinction between personal and enterprise goodwill is critical.  Personal goodwill—tied to an individual advisor—is less transferable and can depress valuations in external transactions.  Enterprise goodwill—rooted in the firm’s brand, systems, and team—is more durable and attractive to buyers.  Poor succession planning risks anchoring a firm’s value to personal goodwill, limiting its salability and long-term viability.

Strategies to Enhance Value Through Succession

To mitigate these risks and maximize valuations, RIAs can implement the following succession strategies:

1. Develop Internal Talent Early. Identifying and preparing G2 advisors is essential for a seamless transition.  Firms should invest in leadership development, mentoring, and client introductions years before a founder’s exit.  By ensuring G2 advisors are trusted by clients, RIAs can transfer personal goodwill to the firm, boosting enterprise value.  For instance, a firm that successfully transitions 90% of client relationships to G2 advisors should maintain or even increase its valuation multiple compared to one reliant on a single founder with no clear successor to manage their client relationships.
2. Leverage External Financing for Internal Transitions. Internal succession, where G2 advisors purchase the retiring owners’ shares, is a common strategy for smaller RIAs.  External financing from RIA lenders or third-party capital can provide liquidity for retiring founders while preserving firm value.  Unlike seller-financed notes, which may carry higher risk, bank financing can stabilize transactions and signal financial health to buyers or appraisers.
3. Institutionalize Client Relationships. To shift from personal to enterprise goodwill, RIAs should adopt team-based advising models and robust client relationship management (CRM) systems.  Documenting client preferences, standardizing processes, and building a recognizable brand can make the firm less dependent on any single advisor.  This approach not only supports AUM retention but also enhances scalability, a key factor in achieving higher valuation multiples.
4. Align Compensation with Long-Term Goals. Compensation structures that incentivize G2 advisors to stay and grow the firm—such as equity stakes or performance-based bonuses—can strengthen succession plans.  These structures align the interests of retiring and incoming advisors, ensuring continuity and supporting valuation stability.

The M&A and Valuation Outlook for 2025

The M&A market remains robust following a record-setting quarter for deal volume, and firms with strong succession plans are commanding premium valuations.

Buyers, including consolidators like Focus Financial and Mariner Wealth Advisors, prioritize firms with institutionalized processes and predictable cash flows, often paying premium multiples for well-prepared RIAs.  Conversely, firms without clear succession plans may face discounted offers or struggle to attract buyers, as valuation hinges on the sustainability of revenue streams.

As the Great Wealth Transfer accelerates and competition from fintech intensifies, succession planning is no longer optional—it’s a strategic imperative.

RIAs that invest in G2 leadership, institutionalize client relationships, and leverage financing options will not only preserve but enhance their valuations, whether pursuing internal transitions or external sales.

At Mercer Capital, we specialize in helping RIAs navigate succession planning with comprehensive valuation analyses and strategic guidance.

Whether you’re preparing for a transition or exploring M&A opportunities, our Investment Management industry team can help you maximize your firm’s value in this dynamic market.

Contact Mercer Capital to discuss how succession planning can enhance your RIA’s valuation and ensure a successful transition.

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, wealth managers, independent trust companies, broker-dealers, PE firms and alternative managers, and related investment consultancies.