From the June 2005 issue of Investment Advisor • Subscribe!

June 1, 2005

The Secret of My Succession

How to handle the emotional issues that come with transition planning

Louis XV of France may have been the last CEO to have a firm grip on the succession issue. His mistress, Madame de Pompadour, told him, "Apr?s nous, le d?luge." In loose translation, "It's going to hit the fan once we're gone."

With the average age of independent advisors hovering in the mid-50s, many practitioners are beginning to grapple with the problem of What Comes Next. Should they retire? If so, when and how? Should they sell the business or their client list?

The business metrics involved are often mind-boggling, but the emotional issues can be even more complex. If you're having difficulty coming to terms with what you want your future to look like, it may help to consider situations other advisors are facing.

I'm thinking about retiring in the next couple of years, while my wife and I are still young enough to pursue our dream of long-distance sailing. I want to find another advisor to take over some of my clients, but am not sure what criteria to set. How should I approach this? To begin with, I would suggest taking a day or two out of the office to focus on some crucial questions.

Ask yourself what is most meaningful to you about your work. What qualities and values do you most prize in the way you have run your business? Is there a legacy you want to leave behind, or a torch you would like to pass to others who share your principles? When you actually leave the business, what kind of situation would you like your clients to be in?

Once you begin clarifying issues about your values and your future, a course of action will begin to take shape. Talk to a number of retired advisors, so you can determine the benefits and pitfalls of the particular choice each of them made.

If you decide to transfer your business, you may want to take advantage of such specialized consultants as Business Transitions. The three major custodians--Schwab, Fidelity, and Waterhouse--also offer business succession services. In any case, be sure to interview possible buyers slowly and thoughtfully to see if their vision corresponds with yours.

Try to find a way to work together for a while or observe their work with their own clients.

The most important step in this whole process is clarifying what you want to pass on to others, and what you want to take with you. Only you can identify these elements. Once they're clear in your mind, it won't be too hard to find whatever business succession support you need.

My partner and I, who are both 57, have always gotten along well. However, I want to retire in the next five years and he doesn't. We can't get past this difference of opinion to find a solution we can both accept. Any ideas? It sounds as though there's more to this situation than you're saying. Do you have reservations about selling him your share of the business? Maybe you feel that he (and your clients) would be better off if he sought another partner whose skills and talents complement his own. Have you been fully open with him about issues like these?

It's essential to sit down together to share your different hopes and dreams. This could take one meeting or several. Try to communicate with your partner in a way that respects his abilities and honors his position, while asserting your opinion about what's best for the company.

If you are fully committed to retiring, you might consider hiring a business consultant to help brainstorm the best way to accomplish this major transition. This may make it easier to decide whether to sell your interest to a third party, or to let your partner buy it and see if he needs someone else to run the business with him. Once a course of action has been set, you can turn to a qualified business valuation firm to determine what your company is worth. Other "matchmaker" specialists can help you find a buyer for your share of the business.

Whatever the two of you agree to do, and on whatever timetable you do it, be sure to discuss your thoughts and feelings about this major change in your long-standing relationship. If you created something that was valuable and good, it deserves to be mourned with respect. Good luck in turning the page to a new chapter in your life.

As the head of a mid-sized firm, I'm planning to groom a few individuals for the next generation of company leadership. How can I keep other valuable employees from losing heart or jumping ship when they realize they're not in this select group? Many of us are inherently competitive--a quality that engages our feelings of self-worth and self-confidence. Dealing with these issues is always a delicate and difficult task.

Therefore, I urge you to be as explicit as possible about your succession plan. Consider calling a meeting of the whole staff to discuss the firm's future. If you contemplate other changes as well, you might conduct a longer, more intensive staff retreat.

In this meeting, take time to validate the unique contributions of each member of your staff. Make your tribute as full, personal, and detailed as possible, not just a cursory comment about valuing everyone. Then you might go on to talk about what you will look for in the next phase of your business--the qualities, strengths, and experience you will expect possible new partners or leaders to have. Identify the individuals you hope will be your successors.

Meet individually with the staff members you've decided not to groom for more responsibility. Some may be disappointed or upset at being excluded from the chosen few.

Whatever the case, you need to let them air their feelings about your decision. Try to salve any wounds by listening to them and praising them sincerely for their contributions to the firm. If you are concerned about losing good individuals, I would offer material as well as verbal appreciation--i.e., a raise, bonus, or other reward for past performance and continued teamwork during the transition period.

Remember, "What you appreciate, appreciates." By making it clear how much you value your employees, you will have a good chance of keeping most of them on board.

After selling my business, I'm working with a transition team to acclimate my clients to the change. However, I've begun to see that the new owners' way of conducting business is not as similar to mine as I initially thought. I'm worried that I haven't left my clients in good hands after all. What should I do? First of all, are you sure the new owners' different outlook is going to be bad for your clients? Or is it just different?

Letting go of a business you have created is like sending your child out into the world; many people have trouble mustering the degree of surrender it demands. The task can be even harder if you were very gifted in your work. So you need to be sure that your difficulty with the new owners is not just a matter of their not being you, but a real reflection of some unacceptable gap between who you thought they were and who they are turning out to be. For a more objective view, you might contact a sampling of your clients and ask how the change is going for them.

If you're convinced that a problem exists, meet with the new owners as soon as possible to share your concerns. Be specific about the behaviors and attitudes you need to see changed. The client feedback you've gathered will give you more credibility and put you in a stronger position. After all, it's in your successors' best interest to cultivate relationships that build on what you've already established.

If they seem willing to provide more of what you expected, give them a little time to see if they institute the desired changes. If they don't follow through and the terms of the sale allow it, you may be able to contact your old clients and suggest a different advisor or group more attuned to your ways of working.

I've been fortunate to have a good group of employees who have stayed with me for years. When I retire, I'm planning to sell my business to an outstanding professional whom I've long admired. I know this is likely to create a terrible ruckus among my staff. How can I execute my plan without jeopardizing the future of the firm? First, be straight and open about your strategy from the get-go. Otherwise, your succession plan can easily turn into a non-success. A case in point was recounted in a recent Wall Street Journal article about a Washington, D.C., bookstore.

The two owners of this business ran it in a unique way, trusting employees to "do their own thing" and applauding their individual contributions. Deciding that it was time to implement an exit strategy, they brought in an outsider who worked among the other employees without telling them that he was being prepared to take over the company. When the truth came out, there was a deluge of havoc and resentment among the other staffers that practically brought the business to a standstill.

In this company's employee-centric culture, choosing one or two successors from within would probably have been a better solution. But even if no one on the staff was qualified for the job, it never should have been a secret that an outsider was being groomed for leadership. The owners should have held individual and group meetings before, during, and after this dramatic step to allow emotional processing.

When thinking about your company's future, take plenty of time to consider the legacy you want to pass on. Ask your employees and clients what they most value about your business and its services.

You may well decide to put it on the market. But give yourself permission to close it down instead of passing it on, if that is a better solution for your needs and goals. You can simply find like-minded colleagues to accept your referred clients, and wish both parties well as they construct new relationships of trust.

Above all, be sure to communicate to the people around you what you are thinking and why you have decided on your course of action. The clearer your vision and the more open your communication, the more easily you will be able to move on to a new phase of your life.

Olivia Mellan, a speaker, coach, and business consultant, is the author with Sherry Christie of The Advisor's Guide to Money Psychology, available through www.investmentadvisor.com. You can e-mail Olivia at om@moneyharmony.com.

Reprints Discuss this story
This is where the comments go.