Exit, Stage Left

There comes that awful realization in every advisor’s life when he finds himself in the netherworld between wisdom and obsolescence. It’s that moment when the reality dawns that he might not have the passion for the job, nor the skill. It’s the recognition that “to die with one’s boots on” is neither metaphor nor joke, but the revelation that your clients and staff may no longer feel you are guiding them effectively. Yet, long before this sense of ennui arrives, the advisor may find himself at a crossroads over whether to devote time to serving clients or to managing the business because of a desire to do both well. As the leader of the business, how do you know when it’s time to step aside?

The velocity with which advisory firms are growing is accelerating this crisis for many. Each lead advisor has a physical limit to the number of optimal relationships she can manage. Similarly, each manager has a physical limit to the number of individuals she can supervise. In either case, that number depends on the practice model and the nature of the role, but it is an irrefutable fact that time is a finite resource.

This problem is more acute in fast-growing practices where both staff and clients are tugging on the advisor’s sleeves hoping for attention. Management by crisis becomes the modus operandi. How ironic that in a business where a key function is planning that its principals are reacting instead.

When the founder is creating and managing a large volume of relationships and still assumes responsibility for stewardship of the enterprise, something has to give. Unfortunately for many, their death grip on both creates an illusion of control. Common signs are statements like “there’s nobody here who can manage the practice as well as I.” “My clients will only stay if I’m involved as their advisor.” “I have the biggest ownership stake and therefore more at risk–I’m not giving up the reins to anybody.”

It seems that management transition occurs most often when advisors are close to exiting from the ownership of the business. But ownership transition should not be the catalyst for management change. By that time, it may be too late to ensure a legacy. Therefore, practice continuity and growth should be the driving forces.

Wisdom, or Obsolescence?

Most owners of practices who have gone through the early struggles of the business have far more relevance than obsolescence when it comes to making management decisions. Wisdom can be shared, and empathy can be imparted, though that presumes that the founder has not waited too long to hire and develop new leaders and new advisors.

The closer one is to the end of his career, the fewer options he has to provide for an orderly transition. It’s common practice to see advisors hire someone as their eventual salvation only to be disappointed by the person’s performance or perplexed by the individual’s lack of skills. Then what? Start over?

Recently I met with an advisor who had over the past 20 years built a substantial practice in terms of clients and assets under management. The growth was especially remarkable considering he was a solo practitioner who had only recently added two support advisors, and who for all this time had only an administrative assistant who also managed elements of the practice. Now that all his children have left the roost and his wife is more forcefully encouraging him to start enjoying the benefits of what they have sown, he was at the proverbial crossroads. Neither of the young support advisors employed by the practice was in a position to be a relationship manager, and his office manager was not strong enough, nor young enough, nor interested enough to run the practice.

The owner’s choices are: add more people at the right level to solve both problems; hire two people he can groom to serve in either a management or advisory capacity (or both); merge his firm into a larger enterprise that already has infrastructure so that he can focus on the clients he wants to serve.

Knowing that he wanted to materially slow down in a few years, he couldn’t bring himself to bring in just one person who may or may not work out. This forced him to seek out merger options with firms that already have a deep talent pool who can take over both client and practice management. This was a suboptimal decision in his mind, however, because it would cause him to officially lose control of the business prematurely.

Self-Examination