The Importance of Succession Generational Planning for Investment Advisers

Succession planning often conjures images of selling a business or grooming a single successor—but for many investment advisers, succession is a longer, more nuanced journey. Increasingly, we’re seeing firms approach this through the lens of generational planning: transferring ownership, leadership, and responsibilities to others in a way that reflects the firm’s long-term vision, values, and regulatory obligations.

At Jacko Law Group, we help Investment Advisers think strategically about how to structure this transition, taking into account the size of the firm and the legal, operational, and cultural considerations needed for an effective succession.

Why Generational Planning Matters

Whether your firm is family-owned or partner-led, planning for generational continuity is essential to long-term value and regulatory compliance. Advisory firms built on trust and relationships often have the opportunity to pass the business on to the next generation, whether it’s a family member or a rising generation of professionals within the firm.

Done right, generational planning doesn’t just preserve value, it enhances it. Clients, future acquirers and regulators alike appreciate knowing that a future leadership plan is in place and clearly defined.

To begin, start by taking the following steps:

• Identify potential internal successors for key positions
• Assess client and team expectations regarding leadership continuity
• Document core values and long-term vision to guide future leadership

Licensing Considerations: The Practical Side of Planning

From a regulatory standpoint, one key aspect to remember when determining a successor is licensing.  Consider if the identified successors hold the appropriate licenses or have the requisite skill set to serve as executive officers, or management.  If not, plan on how they can achieve this and establish benchmarks for them.

To assess, begin by:

• Reviewing licensing and qualification status of potential successors
• Setting milestones for obtaining necessary certifications or skill sets
• Schedule periodic in-person reviews tied to leadership or ownership shifts

Ownership Structures That Support Continuity

For some positions, the identified successor will want to have equity ownership to assume that position. The legal entity structure of your firm plays a central role in how you transition ownership. A few key considerations include:

• How Equity Will Transfer: This can take shape in many forms, including buy-sell agreements, sweat equity or gifting. It is important to speak with experienced counsel to strategically formalize the “how” of generational transitions—when ownership transfers, at what price, and under what conditions.
• Voting vs. non-voting equity: Structuring equity to allow for leadership grooming (without immediately ceding control) is often a useful tool in phased transitions.
• LLC vs. Corporation structures: Each has different implications for ownership transfer, tax strategy, and management succession. Amendments to the governance documents will be necessary and must be done to conform with the Operating Agreement or Bylaws, as applicable.

Importantly, ownership changes, especially those that affect control, can trigger regulatory filings or even re-registration requirements. Having legal counsel that understands both your business model and the regulatory landscape is critical.

Action Items:

• Evaluate current entity structure with legal counsel for strategic considerations
• Work with counsel to draft or buy-sell or other agreements with clear succession triggers
• Outline phased equity transfer strategy based on defined parameters

Start Early, Review and Revise Often

Succession generational planning  is as much about future state  as it is about mechanics. If you have not done so already, formulate your 5-year plan that takes into consideration what the future state could look like.  Clients, employees and regulators want to know that the about your succession.  Practically, staff want to know there’s a path forward; and regulators want the reassurance that the transition will be smooth and well thought out.

Starting early allows you to:
• Train and license next-gen leaders appropriately
• Anticipate actions necessary from a business and regulatory standpointA

• Avoid last-minute surprises
  Preserve firm culture while aligning with modern business goals

Action Items:

• Develop a 5-year succession roadmap
• Hold quarterly transition planning meetings with key stakeholders
• Engage strong attorneys and CPAs to discuss long-term succession plans and how to best structure

For more information on Succession Generational Planning, or for guidance through the process of tailoring an effective strategy, please call us at 619.298.2880 or email [email protected].

JLG works extensively with investment advisers, broker-dealers, investment companies, private equity and hedge funds, banks, and corporate clients on securities and corporate counsel matters, including succession planning. For more information, please visit https://www.jackolg.com/.

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