Surveys consistently point to the fact that most registered investment advisors (RIAs) are not prepared or are underprepared for a succession in the event of the death, disability, or departure of the founder or other key personnel as fewer than half of RIAs have succession plans in place. Failing to proactively engage in succession planning can lead to disaster for the firm’s founder as well as the firm’s clients and employees should the founder or other key persons unexpectedly die or become disabled without a full succession plan in place.

Some RIAs may find it appropriate or necessary to find external parties to facilitate the transition through a merger or sale transaction while many prefer to transition ownership of the firm internally to existing next-generation employees (so-called G2 employees).   

This article will focus on planning for and orchestrating an internal succession. Among other things, this articles highlights the importance of succession planning, provides a blueprint for advisers seeking to develop and implement an internal succession plan, highlights best practices for internal succession planning, and discusses common mistakes that RIAs should steer clear of during this pivotal process.

Why Is Succession Planning So Vital?

A lack of a well-structured succession plan can put an RIA’s entire operation at risk in the event of the death, disability or departure of the founder or other key personnel. Below we highlight four key reasons why advisers should plan now for succession.

First, succession planning is in the best interest of clients as it helps to ensure continuity of service in the event of the death or disability of key persons. A well-executed transition instills confidence in clients, minimizing the risk of client attrition during the transition phase. Second, proper succession planning can help firm founders clearly outline their goals for the eventual transition of their leadership of the firm as well as identify their personal goals with respect to the eventual succession. Third, succession planning is often critical for the professional development and retention of key employees. Investing in the growth and development of G2 employees not only prepares them for leadership roles but also fosters motivation and loyalty to the firm. This, in turn, nurtures a culture of growth within the firm. Fourth, a successfully executed succession plan can enhance the value of an advisory firm, making it more attractive to potential investors if the founder decides to sell equity to outside investors.

What Are the Key Steps in the Internal Succession Planning Process?

Transitioning ownership to G2 employees is a multifaceted process that demands deliberate planning and execution. Below we highlight the key steps firms must take to plan for a smooth succession.

First, it’s vital for the firm to identify one or more individuals within the firm who possess the potential to take on leadership of the firm upon transition. Firms should seek out candidates with not only the requisite technical skills but also strong leadership qualities, integrity, and a firm commitment to the organization’s values and clients. Founders should identify the roles and responsibilities that such G2 employees should assume in the event of a transition.

Second, once potential successors have been identified, the founder should collaborate with such G2 employees to create a development plan tailored to the firm’s and their specific needs. This plan should encompass targeted training, mentoring, and exposure to different facets of the business, including client management, operations, compliance, and strategic planning, as appropriate.

Third, RIAs should set Clear Expectations for the transition. Effective communication is crucial during the succession planning process. Founders should clearly articulate the benefits of the succession plan for G2 employees, expectations regarding the roles and responsibilities of G2 employees, the timeline for management transition and leadership transition, and any specific performance metrics or milestones G2 employees are expected to achieve. Overpromising can lead to disappointment and perhaps the departure of key personnel.

Fourth, founders must adequately prepare clients for the transition. It’s vital for firms to allot a sufficient amount of time before the transition to introduce G2 employees to clients and to help them establish and nurture relationships with clients, gradually taking on more responsibility for client interactions. This will reduce the likelihood of client attrition during the transition.

Fifth, founders must determine how G2 employees will participate in the equity of the firm going forward. Advisers should consult with attorneys and consultants to evaluate the best method for transitioning legal ownership of the firm over time to G2 employees. This may involve the sale or gifting of equity in the firm to G2 employees upon a triggering event or over a period of time. Advisers must ensure that legal agreements, such as buy-sell agreements, protect both parties and address contingencies such as disability or death of the founder or other key personnel.

Sixth, before committing to a complete ownership transition, advisers should consider a trial period during which the G2 employees gradually assume more leadership responsibilities. This provides valuable insights into their readiness and identifies any areas that require further development.

Seventh, RIAs should monitor progress of G2 employees and make necessary adjustments to the transition plan as necessary. Founders should be open to feedback and address any concerns or challenges that arise during the process.

Eighth, once both the founder and the succeeding employees are confident in the transition, the firm should proceed to finalize the ownership transfer in accordance with the legal agreements that have been prepared for the succession plan. This may involve a formal buyout or equity transfer.

Even after the ownership transition is complete, founders should continue to provide ongoing support and guidance to G2 employees. Founders should share their wisdom and experience to help them navigate the challenges of leadership to ensure a smooth transition.

What are Best Practices in Developing and Implementing an Internal Succession Plan?

Numerous factors can impact the success or failure of a succession plan. Below we highlight four best practices that advisers should adopt in order to maximize the succession of the transition. First, advisers should commence succession planning well in advance of the actual transition. Often, succession plans are initially conceived years or decades before the actual transition given the need for time to undertake the numerous steps outlined in the preceding section and to change course in the event that developments occur that warrant changes in the succession plan.

Second, firms must involve key employees, management, clients, and other stakeholders in the succession planning process to ensure alignment and support as the transition plan takes place. Two-way communication is vital to ensure that all stakeholders are adequately heard and concerns are properly addressed when they arise.

Third, advisers should seek guidance from skilled legal, financial, and human resources professionals with expertise in succession planning to navigate complex legal and financial matters that arise in the process of developing and implementing the succession plan. Failure to address legal and regulatory matters properly could lead to liabilities and roadblocks for the succession plan.

Fourth, RIAs should maintain detailed documentation of the succession plan, including legal agreements, development plans, and performance evaluations.

What are the Most Common Mistakes Made by Advisers When Planning for an Internal Succession? 

Mistakes made in the succession planning process can adversely impact not only the founder, but all stakeholders. Below we highlight five of the most common mistakes made by advisers when engaging in succession planning.

The first and most common mistake made by RIAs is procrastinating when it comes to development and implementation of the succession plan. Succession planning is not always the most pleasant topic to discuss or the highest priority at any given point. However, delaying succession planning can lead to rushed decisions and inadequate preparation, increasing the risk of a poorly-executed transition. Procrastination can (and often does) lead to valuable G2 employees leaving to pursue other opportunities as they lose hope that their current firm will provide them with the career path they desire.

The second mistake is failing to adequately prepare G2 employees to assume new roles and responsibilities as part of the business succession. Founders often want (and believe they need to) continue to keep tight reigns over the business of the firm until they exit. This includes maintaining responsibility for managing client relationships. However, if the firm fails to adequately train employees and, if appropriate, introduce them to clients, with sufficient time for such employees to learn their new roles and the clients they will serve, the succession plan can hit bumps in the road. If G2 employees are not prepared, this could also result in a loss of confidence from firm clients which could ultimately result in client attrition upon the departure of the firm’s founder.

A third mistake is the failure to adequately communicate with all stakeholders. We have discussed above the need to adequately prepare employees. However, advisers must also prepare the clients and allow them plenty of time to ask questions about the transition and to become familiar with new personnel who will serve them following the transition.

A fourth mistake is failing to properly document the succession plan, including preparing appropriate legal documents that will formally memorialize the terms of the succession plan. The failure to document a succession plan in a timely manner could lead to confusion and disagreements among the founder and G2 employees.

A fifth mistake is failing to retain qualified legal, financial, and human resources experts to advise on the transition as this could lead to regulatory or legal liabilities that could arise in the succession planning process.

A sixth mistake is failing to prepare for contingencies that may occur in the process of developing and implementing the succession plan. As noted above, succession plans take years, and perhaps decades, to adopt and implement, and unexpected events can arise in the course of such succession planning. Advisers that adopt inflexible succession plans may find themselves facing business disruptions if such unexpected events materialize, which could result in harm to all stakeholders.    


Succession planning is a critical process that ensures the long-term viability and continuity of the investment adviser and is vital to ensure that the firm’s founder, G2 employees, and clients are adequately protected in the event of the death, disability, or other departure of the founder or other key personnel. By adopting a well-conceived plan, implementing best practices, and avoiding the common mistakes highlighted above, advisers can maximize the likelihood that a succession plan will be executed smoothly for the benefit of all stakeholders. Effective succession planning represents an investment in the future that secures the legacy of the business and positions it for sustained success in the ever-evolving investment advisory industry.

What questions do you have about internal succession? Please reach out, and we’d be happy to see how we can help answer your questions.

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