The baby boom generation’s imminent retirement will catalyze many adjustments in our society and in our industry. Like many of the closely-held business clients they advise, a lot of the industry’s most seasoned financial professionals have begun to think about life after work. The time has come for them to heed their own advice for creating a proper business succession plan.
As top producers begin to retire, the industry, field distribution organizations and the producers themselves are grappling with how best to transition to the next generation, while maintaining seamless client care. Losing such time-tested talent and experience all at once could send the industry into a tailspin if younger advisors are not primed to take charge. Tese junior associates could be left overwhelmed and poised for failure if the transition is not appropriate and well-orchestrated.
As producers examine the factors contributing to the growth and continuation of the practice they have spent a lifetime building, turning to distribution organizations as a strategic business partner in this process may prove invaluable. Experience tells us that even producers who have been independent for much of their working years will look to larger distribution organizations to play a role during this stage of their careers. And, they will likely receive the support they seek, since more companies are seeing that succession planning for the industry’s top producers is a benefit to their organizations.
Distribution organizations realize that providing succession planning support to top producers will help to retain producers already affiliated with the company while attracting additional seasoned producers. Providing succession planning support also will offset the number of orphaned policies, while affording the company a role in the selection of appropriate successors to maintain high client satisfaction and business retention.
Producers benefit from this assistance through support with formal business valuations, help with identifying and contacting potential successors, guidance for drafting a comprehensive succession plan, and help with the economics of the transition, including the structure and financing of the buy-out by the junior associate.
The 3-pronged approach
Unfortunately, not all successor relationships work out. Various factors from failure to gain financing to dissimilar work styles to inadequate transition time may all contribute to the failure of these arrangements.
Research and experience indicate that solid succession plans address 3 components of the transition, all different yet equally important to a smooth changeover: ownership transition, management transition and client transition.
Ownership transition deals with the legal aspects of transferring business ownership from one advisor to another. The qualifications, both financial and otherwise, of the successor producer must be examined to evaluate suitability.
Management transition addresses the technical aspects of actually taking charge of the practice, including all day-to-day operations, marketing initiatives, accounting responsibilities and management of personnel. Often, if the senior practitioner intends to continue some level of involvement in the practice, this transition runs smoother.
Client transition is a critical component. After all, clients have built a relationship of trust and respect with their advisor, and therefore need to be assured they will continue to receive the same level of attention and service they have come to expect. This component tends to concern advisors most: Will the relationship they have nurtured for decades unravel the moment they leave their practice? They need to know that their clients will be in good hands once they are gone.
When and where to begin
It is important to allot enough time to create and implement a proper succession plan. Those producers who are already planning suggest starting from 3 to 7 years before a producer intends to retire.
As with most complex business decisions, dissecting succession planning into smaller, more manageable steps will help advisors formulate a reasonable action plan to keep the process running smoothly. These steps include:
1. Deciding on a timeline. Proper succession planning can take years.