When it Comes to Succession Planning, Start Early

It’s not retiring, just transitioning.

While a major component of financial planning is preparing clients’ estate plans for after they’re gone, oddly enough, advisors often neglect to make similar plans for their firms. Succession planning can be an intensive and emotional process, but the longer founders put it off, the more clients might be looking for a new home for their assets. “We see a lot of clients that are coming to us wanting to leave other firms because they don’t see transition plans,” CD Wealth Management founder Scott Cohen said at a press event held by Kestra and Bluespring Wealth Partners in New York City last week.

Next in Line

In many instances, founders and next-gen advisors are misaligned on succession plans, and in some cases, founders intend to die at their desks. However, the earlier firms get an idea of who will lead after the founder or CEO is gone, the better. “It’s something that people need to take more seriously and take some of the medicine that they’re giving their clients about documenting a plan for succession,” said John Amore, president of Kestra Financial, which recently published a study that found:

• Only 6% of advisors currently have a fully realized succession plan. 
• The top priorities for firm owners when it comes to succession planning are ensuring clients continue to receive the same level of care and maximizing practice valuation. 

First Hand Experience. After the timeline kept getting pushed for when Cohen would take over his former firm, he decided to start his own practice and not make the same mistake. He identified a successor, offered her equity in the firm, and created a pathway to leadership, which began by training her in multiple roles and responsibilities at the firm. This year, Cohen stepped into an advisor role while the successor took over as CEO. She’s already identifying potential successors. “We’re already thinking about it so that we’re never stale, we’re never making a last-minute decision and it’s the wrong one,” CD Wealth CEO Ilona Friedman said. 

Whether it’s an ego issue, or not fully trusting a next-gen advisor, some founders just don’t want to give up their firms. However, Cohen said they should always put clients before themselves. “What’s more important about the future of their firm?” he said. “Is it [the founder] or is it the firm?”