Today's Viewpoint: A MarshBerry Publication

Best Practices for Perpetuating Your Wealth Advisory Firm

The wealth advisory world is reaching crisis mode as advisors age out of the industry and into retirement. How can firm owners better prepare for the inevitable with a perpetuation plan that fits their specific scenario? 

There are certain truths in life, some of which we may prefer to deny. In wealth advisory, at a certain threshold, the age of firm owners and that of its most successful advisors is correlated with the value of the firm. Simply put, the older the age of the owners and advisors, the lesser the value ascribed to the firm. That is, unless you have a perpetuation plan. 

Valuation deflation is the result of several factors: 

  • Firms making acquisitions seek to acquire not only revenue but also talent. If the talent intends to wind down or fully exit from the business, the acquisition value will be negatively impacted. Further exacerbating this issue is that when advisors exit the firm, client attrition can occur, putting the newly acquired revenues at risk.  
  • Client demographics oftentimes mirror that of the advisor. Those loyal clients that were brought on decades earlier are now in their late 50’s and 60’s, and are themselves thinking about retirement, particularly if the advisor has done their job well. A client base heading toward the decumulation phase of their investment lifecycle may negatively impact a firms’ value.  

But all is not doom and gloom, particularly if you plan for this important life event. 

The first question that you need to ask yourself is “Is there a next generation of talent within my firm who can take over my client book and can assume P&L responsibility for the firm?” If the answer is yes, then you have great options. Having a strong next generation of leaders and advisors provides the flexibility to either sell the business externally at a premium value or perpetuate the business internally. As you plan for your future, you’ll want to consider the following: 

  • If you aren’t already doing so, co-service your accounts with your team. You can start gradually but make the effort to expand beyond the one-to-one client-advisor relationship. This will not only institutionalize your client relationships, but will also develop your staff such that the eventual transition is seamless. 
  • Begin to transition equity to key business leaders and advisors. You’ve spent your career building a successful advisory firm. Most likely, you’ve created something of great value. If internal perpetuation is important to you, then start this process early. In most cases, this takes 5-7 years, and sometimes longer.  

If you do not have a team of advisors in place, you still have options. You may decide that you’re at a stage at which it may make sense to recruit and develop your successor. Again, this will take time so start early. If you do not have the desire to recruit talent, you may consider partnering with another firm well ahead of your retirement. By staying on with an acquirer, you may be able to secure the talent premium, monetize some portion of your holdings, and continue to be well compensated for growing and servicing your book. 

As the average age of advisors approaches 57 years1, expect to see an exodus of advisors in the coming years with nearly 40 percent retiring within the next 10 years.2 And since one in four will retire without a perpetuation plan2, the industry is reaching crisis mode.   

Whichever path forward you choose, have a plan. This protects your clients, your employees, and ultimately, your legacy.    

Choosing What the Future of Your Firm Looks Like – A FocalPoint Webinar  

Join Kim Kovalski, MarshBerry Managing Director, Financial Advisory & John Orsini, MarshBerry Director, Financial Advisory at 1 PM ET / 10 AM PT on February 1, 2024 as they discuss the ways that top tier wealth management and retirement planning firms are achieving their goals and optimizing the future value of their firms  Register today.

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Contact Kim Kovalski
If you have questions about Today's ViewPoint, or would like to learn more about how MarshBerry can help your firm determine its path forward, please email or call Kim Kovalski, Managing Director, at 440.769.0322.


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