March 15, 2010

Succession Planning: Sooner Is Better

Succession planning can help RIAs build strong and more valuable practices, yet only a small minority of advisors has planned for succession, according to a recent report in the Schwab Market Knowledge Tools series.

"Having a comprehensive succession plan in place helps advisors to proactively put their clients at ease, ensure that the future of the firm is directed, and create a more valuable practice," said David DeVoe, a managing director with Charles Schwab Advisor Services, in a statement.

The report, Succession Planning: Your Firm's Future Starts Now, lays out four steps for an advisor to follow. First, establish strategic goals and create a plan that encompasses the firm's business objectives and the advisor's professional and personal objectives. Key considerations here are how the plan retains the firm's business philosophy and approach to client service; what role the advisor wants to play in the firm during transition; and how his or her own retirement objectives might affect the timing and structure of the plan.

Next, identify a potential successor with the requisite skills and expertise to run and grow the business, manage client relationships and service, and implement the RIA firm's investment management philosophy.

Third, structure a deal that clearly sets out roles and responsibilities in order to minimize confusion for clients and employees; that meets the seller's needs and is affordable to the buyer in terms of total price and continuing costs to the business during the payout period; and that sets up a specific structure of payments.

Finally, after the succession plan is in place, focus on implementation, including such matters as when the successor will become the firm's chief decision maker and being prepared to deal with any unexpected complications that may arise during the transition.

Michael S. Fischer is a New York-based financial writer and editor and a frequent contributor to Wealth Manager.

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