Successful Succession: Why You Really DO Need a Plan

If you are in the business of dispensing financial advice and/or managing wealth for high net worth individuals, you are likely familiar with the statistics showing that this is a greying industry. Cerulli research suggests that the average age of financial advisers is 50.9 years and 43 percent of all advisers in the U.S. are over the age of 55, and astonishingly nearly one-third of advisers fall into the 55 to 64 range. In this day and age of healthy Boomers working well into their 70’s and even 80’s, this might not seem like a troubling statistic. However, at some point each and every advisor will move on – whether by choice, or by life forces intervening. Acting as if this simply won’t happen is not a good plan, any more than telling wealthy clients not to worry about planning for their future by making good investment decisions.

The industry built on planning often neglects their own planning! There is a great deal of emphasis on the numbers – valuation and such. But equally important to consider in each individual case is what matters to you about your succession? What type of culture have you created? What do your clients think and feel about working with your firm? What’s the attitude or approach of your staff (whether it be one admin or a huge team behind you)?

In my experience, the biggest mistakes advisors make are not thinking about what they want to do early enough in their journey, and not considering the “softer” side of the equation when selling, buying, or merging with another practice. It’s easier to focus on the numbers – the calculations, the buyout, the client retention, etc. Not to diminish the amount of time, focus and energy that goes into defining these things and making these decisions, if things like culture, client experience, attitude and approach are not in place, it can be a long, hard journey to success post-contract negotiation. This is where one advisor or the other might wake up thinking, “What did I DO??!”

There are many aspects of putting a firm together, planning succession, or selling and leaving the business, including communicating with clients and employees, name changes, branding, etc. Laying all of those important aspects to the side for now, and focusing on the personal aspect of this journey, here are five things to consider when the issue of succession next comes up in your own mind, or when you’re doing business planning with team members and colleagues:

1. Define what you want. Do you want to stay in the business somehow? Do you want to walk away entirely? Do you want to groom the next “you” to run the business in your image? Are you handing your business off to a family member? One of my clients, who is a sole practitioner, focused a lot on quality of life and wanted a plan that did not disrupt the work/life balance she had carefully crafted. This hard a big influence on the type of plan we were able to create together.
2. Think about succession in the short term. Anything could happen. There have been far too many situations where a senior person, or the founder or co-founder, has tragically passed away quite unexpectedly. The firm then scrambles to figure out what to do. It’s common to have a Disaster Recovery Plan for documents, client files, etc., so why not a Disaster Recovery Plan for the possibility of losing each important member of the firm?
3. Think about succession in the long term. Is this your last act in life? Do you want to go on to do something besides running your advisory practice? What else might be in store for you? What would a transition really mean, and what do you want to do? It’s interesting how much time advisors will spend with a client, helping them paint the picture for their dreams and goals in retirement, but how seldom advisors sit and think about their own dreams and goals. Amassing a great deal of money and strong valuation in your firm is not a life goal. It’s a step to take, but what do you want to do once you have the money in hand? What’s your next chapter? One client I worked with talked about wanting to do stand-up comedy. It’s impossible to spend the necessary time to do this without creating an infrastructure in the firm that will enable you to step out and make the time.
4. If you do merge, sell, or buy – how much do you like the people or person you are collaborating with on the deal? Yes, how much do you “like” them? Seems so silly, but the biggest areas of difficulty in our firm’s experience working with advisors comes from the lack of cohesion and sameness in newly “married” partners. Culture clashes, differences in approaches with clients or in investing, strong beliefs in planning versus those in investment discipline clashing, etc., etc. You want to enter into an agreement with someone or a larger firm you respect and might like to spend time with outside of work, too. It’s not that complementary styles and approaches can’t work, but go into this with eyes open about the impact when they do. One will always have to “win” in a disagreement, so if you are on the weaker side of the equation, consider what this will mean to you.
5. Get. It. In. Writing. The number of vague agreements, conflicting views on what was meant but what was agreed to, differences of opinion in application of what’s been agreed upon that I’ve seen is truly startling. Again, you will spend a lot of time focused on the financial aspect – and again, it’s extremely important to do so – but spend just as much time on the day-to-day “how will we live together” or “how will we part friends?” I know of far too many cases where the former founder, partner, or senior person is either spending their desired retirement in a legal battle over misunderstandings or miscommunications, or ruing the day they decided to join with their former firm. Think about everything that matters to you – write it down and negotiate it in advance.

This is your career, your life’s work, and for many people, their “baby”. The firm may have your name on the door and be very personal to you. Treat yourself as you would any good client – take the time to think about what matters, focus on dreams and goals, and tread carefully into a new relationship. Leave no stone unturned to plan for your next chapter!