Charles Schwab Outlines Fundamentals for Independent Advisor Succession Planning and Firm Valuation

Wednesday, February 10, 2010 6:00 am PST



Public Company Information:


SAN FRANCISCO--(BUSINESS WIRE)--As independent investment advisors become more focused on succession planning and mergers and acquisitions (M&A), Charles Schwab and Co., Inc., a leading provider of custodial, operational and trading support for approximately 6,000 registered independent advisors (RIAs), is releasing two new and instructive Schwab Market Knowledge Tools® (MKT) reports to help advisors implement succession planning, value their firms and understand (M&A) deal structure. The two reports, Succession Planning: Your Firm’s Future Starts Now and Transition Planning: Valuation and Deal Structure, examine design and execution of succession plans, the factors and considerations driving RIA firm valuation, and common M&A deal structures being used in the industry today.

“As advisors’ interest in succession planning and M&A is nearing all-time highs, these timely reports will help RIA principals through these complicated topics,” said David DeVoe, a managing director with Charles Schwab Advisor Services. “In fact, the growing sophistication of advisors’ M&A expertise is one of several factors that has contributed to the long-term increase in industry M&A, in addition to continued interest of holding companies and private equity firms in RIAs, as well as advisor principal demographics,” DeVoe elaborated.

Succession Planning: Your Firm’s Future Starts Now

Schwab’s new report on RIA succession planning details the four primary steps in establishing and executing a succession plan, including:

  1. Setting strategic goals and creating a plan taking into account the firm’s business objectives and an advisor’s professional and personal objectives. The report identifies key questions an advisor should consider, including how a succession plan retains the firm’s business philosophy and approach to client service, the role an advisor wants to play in the firm as the transition takes place, and how an advisor’s personal retirement objectives might impact the timing and structure of the plan.
  2. Identifying a potential successor that has the skills and expertise necessary to manage the key elements of running an RIA firm, including business management, client relationships and service, and the firm’s investment management philosophy.
  3. Structuring the right kind of deal that clearly outlines roles and responsibilities during the transition, ownership stakes and ownership transfer timetables, and specific deal structure.
  4. Implementing the plan with a timeline for key transition events, such as when a successor becomes the decision maker in the firm.

“Succession planning is a critical exercise even for advisors who are not ready to sell or exit the business,” said DeVoe. “Whether advisors’ clients are verbalizing the question or not, they are wondering ‘what will happen to me’ if something happens to their advisor. Having a comprehensive succession plan in place helps advisors to proactively put their clients at ease, ensure that the future of the firm is directed, and create a more valuable practice.”

Transition Planning: Valuation and Deal Structure

Schwab’s new report on RIA firm valuation and M&A deal structure is designed to help advisors understand the key drivers of firm valuation, the mechanics of common valuation techniques, standard deal structures, and the potential benefits of the valuation process even for firms that are not currently planning to engage in M&A activity.

Specifically, the report outlines:

  • Key drivers of RIA firm valuation and explanations of how cash flow, expected growth trajectory, and risk mitigation influence value.
  • Common valuation techniques used for RIA firms, such as a “market” or “sales comparison” approach that establishes an approximate firm value by looking at the selling price of similar business, and a “discounted cash flow” approach that estimates the future cash flows of the business which are then discounted back to a present day value.
  • Common elements of RIA firm deal structures, including retention targets based on the expected number of assets, revenue or clients that will be retained through the deal, and earn-out periods that determine the size of initial payment to the seller and the duration of the payment cycle.

“Similar to planning for succession, walking through a valuation process can be very beneficial even for firms that are not currently engaged in M&A activity,” noted DeVoe. “By gaining a better understanding of the key valuation factors including cash flow, growth, and risk minimization, advisors can build stronger, more efficient, and more profitable firms.”

About Schwab Advisor Transition Services

The two reports complement Schwab’s broader offer for advisors called Schwab Advisor Transition Services, which is designed to support advisors through each phase of the transition process including strategic assessment, evaluating options (internal succession, external sale, merger or acquisition) and executing a transition plan. In addition to the Mergers & Acquisitions Listing Service, the program includes:

  • Educational events – Workshops, and webcasts led by industry experts covering strategic, valuation, organizational, legal and tax issues involved in succession planning, and acquiring and selling an independent advisory business.
  • Access to experts - Independent consultants, investment bankers, lawyers and accountants who have experience working with investment advisors on succession planning, mergers and acquisitions, and valuation.
  • Educational contentArticles and whitepapers including best practices and insights on valuation methods, legal considerations, succession planning, and mergers and acquisition case studies.

Additional information is available at

About Schwab Market Knowledge Tools® (MKT) Reports

The Schwab Market Knowledge Tools series is an ongoing program of industry research reports, white papers and guides from Charles Schwab designed to keep investment advisors on the forefront of trends and competitive challenges facing the industry today. Offered exclusively to Charles Schwab’s valued clients, the Schwab MKT program delivers the kind of relevant and timely information needed for future business planning.

Information provided is for general informational purposes only and is not intended to provide specific financial, compliance, regulatory or legal advice. Schwab makes no representations about the accuracy of the information or its appropriateness for any given situation. For further information, please contact your legal counsel.

About Charles Schwab

The Charles Schwab Corporation (Nasdaq:SCHW) is a leading provider of financial services, with more than 300 offices and 7.7 million client brokerage accounts, 1.5 million corporate retirement plan participants, 722,000 banking accounts, and $1.42 trillion in client assets as of Dec. 31, 2009. Through its operating subsidiaries, the company provides a full range of securities brokerage, banking, money management and financial advisory services to individual investors and independent investment advisors. Charles Schwab & Co., Inc. (member SIPC,, and affiliates offer a complete range of investment services and products including an extensive selection of mutual funds; financial planning and investment advice; retirement plan and equity compensation plan services; referrals to independent fee-based investment advisors; and custodial, operational and trading support for independent, fee-based investment advisors through Schwab Advisor Services. The Charles Schwab Bank (member FDIC) provides banking and mortgage services and products. More information is available at (0210-0868)


Charles Schwab & Co.
Michael Cianfrocca, 415-667-0344
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Janet Yoo, 212-508-9606

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