If you had a career wish for your daughter or son, would it be as a financial advisor? If that wish came true, could you also imagine your offspring working with you one day? Now–if you’ve gotten that far–could you envision your child becoming your partner and, ultimately, your business heir?
This vision differs greatly from how many advisors think about their succession plans. In fact, the idea of anybody close to them taking over their business may be the furthest thought from their minds–and yours, especially in light of recent noise about consolidators and banks paying big multiples to acquire advisory firms. For many, succession planning has become “sale” planning, with more focus on the deal itself than on the process of ensuring an orderly transition. In addition, these high multiples are enticing and often lead to the decision to omit family members as potential successors, as their currency of love and devotion may not be enough to help you plan your retirement.
There are many reasons to resist the idea of bringing children into the business, not the least of which is that it may not have occurred to you that someone from your own gene pool might be as good (or better) than you as an advisor. After all, you’ve had a chance to observe everybody in your family up close, and may have determined that the annual food fight at Thanksgiving is about as exhilarating a family interaction as you are willing to indulge.
Consider your options as they relate to succession planning:
What Your Peers Are Reading
- You could sell to a consolidator or institution, and leave the management and client succession issue to the buyer.
- You could turn over the practice to a key employee raised in your culture and already connected to your clients.
- You could bring in a new advisor whom you can groom to be your successor.
Within these choices, is there a role one of your children can play in the transition?
First, Determine the End Game
It may be helpful to first resolve what your own end game is with your business. To capitalize on the current wild sellers’ market? To make enough on the sale of your business to eliminate financial worries in your retirement? To ensure your clients are well tended to, and that your staff is not left in the lurch? To provide career opportunities for others? To build a legacy and a continuing presence in the marketplace?
The answers will differ, depending on personal circumstances and general disposition, and no single answer is wrong. However, we usually find that people who build a business to last will have created a business to sell. When practice continuity, instead of business succession, becomes the primary goal, firm owners are open to many more possibilities for facilitating business transition, while still achieving personal financial goals.
Building a practice to last means developing a deep bench of talent with whom your clients work and who enhance the way you do business; leadership at all levels; a commitment to processes, protocols and quality control; strong and growing profitability; a sustainable and systematic business development effort; and an environment in which motivated people can advance in their careers.
Clients often feel more confident that they will not experience a disruption when their advisor retires if they know who will be taking over the reins and responsibilities of working with them. Employees also are able to stay focused when they have reasonable confidence that the culture, processes, and approach to business will not be materially disrupted with a new leader. While there may be temptation to shrug off concerns of your clients and staff when somebody is waving a big check under your nose, the reality is that most acquisitions contain terms tied to performance, growth, and continuity. Anything that puts those elements at risk could result in a lower purchase price–or, more likely, no premium over the agreed-upon base price.
The End Game and Your Children