5 Tips for a Seamless Succession

Financial advisors play a vital role helping clients plan and prepare for their financial futures. It’s funny that advisors don’t apply the same foresight to their own futures. 

It’s no secret that developing a written succession plan is essential for effective business planning. But, a recent report by Cerulli highlights that over the next decade, more than one-third of financial advisors — who collectively manage more than $11 trillion, representing 42% of total industry assets — are expected to retire. Alarmingly, many of these advisors don’t have a formal succession plan. Are you one of them?

Where’s the Goalpost?

Start by outlining the goals and objectives. Factor in a desired timeline, financial considerations and the type of successor that would most benefit the firm: internal, external or both. The most successful plans address the goals of every stakeholder — including owners, their families, and staff — while also considering how the transition will impact clients personally.

Perhaps the most important decision for the business’s future is who will take over when the founder steps away. Larger businesses, or those offering multiple services, may need to identify several successors for a seamless transition. Whether it’s one successor or several, the first step is determining whether the torch gets passed internally or externally. If the successor is internal, allow time for mentoring and training so that the practice can continue without interruption after the founder’s departure.

Tunnel Vision. This only works if the owner and successor share a clear vision for the future. How can you be sure  a potential successor truly sees the vision and will honor the hard work and solid reputation that enabled the firm’s success in the first place? Start small and keep it personal. Really get to know the staff and leadership teams. Find out what makes them tick, what they care about and who they are on a deeper level. For example, host a summer barbecue at the office and invite your team’s families. When people relax, casual one-on-one chats often evolve into meaningful conversations about career ambitions, development aspirations and future goals. 

What about an external successor? While this broadens the recruiting pool, it also adds complexity. Finding the right candidate means identifying the right mix of personality, experience and skills for a smooth transition. Here’s what to look for:

• Alignment with the practice’s values and culture.
• A desire to learn about the business, clients and staff.
• Experience with a comparable service model and investment philosophy.
• Strong relationship management skills, a solid work ethic, and leadership skills.

Build Value

The succession-planning process enables holistic evaluation of the business and identification of opportunities to enhance its value. To attract potential buyers, showcase sustainable growth, how the firm has leveraged technology and processes to drive efficiency, and the strength of relationships with clients and staff. Identify competitive advantages  and areas for improvement by asking the following questions:

• What percentage of the business generates recurring revenue and how can that profitability be increased?
• What are the client growth and retention rates?
• Is the practice fiscally responsible? Are budgets followed to manage spending and keep costs within projected limits?
• How strong is the brand, and is there a key niche that is a differentiator?

Next Chapter

Once everyone is aligned strategically and operationally, shift the focus to clients. After all, the founder has likely guided them through some of the most significant decisions and changes in their lives. It’s essential to involve them in your succession planning. Early conversations with the most trusted clients can reveal concerns and build confidence in the transition. Maintain open communication with clients throughout the transition process and address any concerns or questions promptly to ensure there is an ongoing atmosphere of transparency and trust.

When ready, introduce the successor through client-facing tasks such as answering client questions or responding to inquiries. This will help build trust and rapport over time. 

Tee Time. While some advisors may be ready to retire, others may not. Maybe an owner plans to stay at the firm post-sale in a part-time or consulting capacity, but what happens after that? That decision is up to them. However, the sooner they begin developing a succession plan for the firm, the more time the founder has to prepare clients — and themselves — for what lies ahead.