Practice Management > Succession Planning

Career-Long Succession Planning = Good Practice Management

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Today’s succession planning is an important career-long activity that promotes good practice management. Having the “end game” in mind, and knowing and working toward what will make one’s firm valuable along the way helps to maximize the potential of the practice.

Evolution of succession planning

As recently as 15 years ago, the predominant belief was that value was vested in the individual financial professional and not in the practice. As a result, owning a practice was viewed more as a job than as a business. However, this environment is changing rapidly due to a more competitive acquisition landscape, which demonstrates the value that financial representatives can build had not been fully realized in the past. Indeed, value lies not only in the practice’s assets or intellectual property but in client relationships as well.

Doing what is right for clients and protecting the equity in a business are mutually dependent. The only way to ensure both is to plan for a seamless transition to a successor who has a clear understanding of the future needs of clients, their families and their assets.


Done correctly, succession planning improves the practice, but the exercise also has benefits for both young and experienced representatives and, perhaps most important to the success of a practice, the clients.

Young representatives coming up into a practice that actively practices succession management tend to receive real-time opportunities for learning from a senior mentor and, critically important, (instant) access to a market. One of the industry’s greatest challenges is keeping younger reps encouraged enough to work through the early years of building a practice. In a team environment, with a succession strategy in place, younger representatives may not have that same struggle if they’re working with a senior rep and his or her clients.

More experienced representatives are closer to realizing the benefit of what they’ve worked to build. With a clear plan in place, and having used valuations and continuity contracts throughout their careers, an experienced rep would have the time and ability to build the practice to be worth what he or she has worked for. The rep in this ideal situation would also have a good idea of which of the younger reps is the best match for his or her business and clients.

Most importantly, clients benefit from having a rep who has thought through the future and may have started involving younger reps in getting to know these clients and forming deep relationships. It’s really no longer acceptable to just leave a client with a list of potential contacts upon one’s retirement.

Succession management: Key components lead to best practices

Practice Valuation

Understanding your current business value is a key step in building the practice you envision. It not only helps you see where you are today; it provides the basis for getting where you want to be in the future. Once you have completed your valuation and know what your practice is worth and the revenue generated from your insurance-based trails, you will know what is required to reach your equity and succession goals. And you will be better prepared to build a practice that will be desired by potential buyers.

Client Relationship Theory

Because your client relationships are a key factor in assessing the future value of your client book, the depth and length of these relationships directly affect the probability of future revenue events. While the client life cycle will dictate client needs, therefore providing a baseline probability of future events, the client relationship will determine if these events are more or less likely to happen than the average.

As previous transitions of financial advisory practices have demonstrated, if the client relationship is strong, it is more easily passed by a retiring advisor to a successor. Clients who are accustomed to consistent and thorough contacts are not only more likely to transfer their loyalty to the incoming advisor, but more likely to entertain ideas for new investments and services.

Because the client relationship and not past product sales or services drives future income from a client book, a renewed focus on how this relationship is managed will be the key to increasing the value of a financial representative’s practice.

Client Relationship Practice

Good succession planning uses a client relationship management (CRM) tool. When using such a management tool, reps can better understand their practice holistically by looking at the book’s relationship management activities in total and at the client level. CRM tools foster good client care and make a rep’s practice more desirable, thus enabling an easier transition of the business to a successor.

Short-Term Continuity Planning

All reps should have a short-term continuity plan in the event they are unable to handle their clients’ business. This plan meets a critical need: to protect clients and employees in the short-term. However, it also can lay the groundwork for developing a complete, long-term succession plan to maximize and realize the equity of one’s business. It is a basic and essential step in protecting business equity and the trust your client places in you, and thus is considered good practice management.

Long-Term Succession Planning

Recent studies have shown that the most productive practices take place in a team environment wherein a senior rep works with many reps in different disciplines, perhaps as set through continuity agreements. They may all become successors to parts of the practice; or one rep may become a successor to the whole practice. By working with many individuals, production is increased, and the best “match” can be determined. It is important that a match between the senior rep and the junior successor exists, but it is the match between the junior rep and the senior rep’s clients that is critical.

No mystery

There’s nothing mysterious about succession management (except perhaps the paperwork). It’s really just business planning that helps your practice grow to its potential and serves your customers in the best way possible. It’s never too early to start planning.

Brian Heapps, CLU, ChFC, is executive vice president of sales and business development for John Hancock Financial Network, Boston, Mass. He can be reached at [email protected]

Succession Management

Is Important to Reps

According to a 2009 succession planning survey of more than 500 representatives developed by Mathew Greenwald & Associates and conducted online by John Hancock Financial Network, more than 6 in 10 respondents (63%) reported that succession planning was a concern of theirs, though only about a third (31%) had actually worked on or completed a plan.

In looking at the succession process, respondents were most concerned about what would happen to clients (97%) and how they would get cash for their businesses (88%). Also of concern were: the logistics/paperwork/details of the transition (82%); financing the transition (76%) and bringing along younger reps (75%).

Of those who have actually started (or completed) a succession plan, more than half (56%) said the industry does not do a good job of helping reps with their own succession planning.

Large majorities of respondents would like support with major components of succession planning, including: obtaining a valuation for investment business (72%); obtaining a valuation for fee-based business (65%); and having access to financing for the transition (67%). Majorities also want support with obtaining a valuation for insurance business (65%), arranging third-party management of the transition (61%) and help with finding a successor (58%).