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Succession Planning: Pass It Forward

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As you help your clients prepare for retirement, is that R-word beginning to push your personal buttons? To wit, isn’t it time you yourself started planning how you will retire?

Since so many advisors are old enough to qualify for senior soft drinks at McDonald’s, I talked to an expert who could explain succession planning as it affects advisors: David DeVoe, managing director of strategic business development at Schwab Advisor Services in San Francisco.

As a supplement to his first-person feature article which precedes this column, I asked DeVoe a series of questions on the business steps revolving around succession. I’ve added my own comments on the behavioral and emotional issues that advisors must face while they’re planning and implementing a succession, and dealing with life afterward.

Q: I’m a financial planner whose small three-employee firm includes one other advisor. My wife tells me I should be thinking about the future of the firm: Who will succeed me when I retire? Who would take over if something happened to me? I know succession planning is important, but I’m only 38 and way too busy to spend time on it now. What’s the best age to begin working on a plan?

DeVoe: Right now is the best time, regardless of your age. Clearly, there are a couple of components to your succession plan. The key component is finding a person or an organization to take over if something happens to you. When you take the time and effort to put such a plan in place, your clients, your staff, and your heirs are in a better position to succeed and thrive.

I would add: As a psychotherapist and money coach, I know this advisor probably resists thinking about his own mortality. It’s no fun to imagine a severe disability or sudden demise that would necessitate replacing him. In approaching these emotionally charged issues, I find it’s a delicate balancing act to help advisors confront unpleasant possibilities without panicking them. Instead of sticking their heads in the sand and refusing to do anything, they need to be gently brought back to the importance of making a contingency plan.

Q: Over the past 10 years, I’ve built my firm to $100 million AUM. I think two of my employees might be interested in eventually buying me out. How do we figure out what the business is worth and whether they can afford it? I’m too busy working with clients to become an expert on this.

DeVoe: This is a critical area, but if you don’t have the time or inclination to dust off those textbooks and fire up your Excel, luckily there are experts who can help. Depending on the size of your firm, you can tap the expertise of consultants whose price tags can range from $15k to as much as six figures. For smaller firms, Quist Valuation can help you value your firm, and you can draw on the advice of M&A firms like Gladston or Incap Group. For larger firms with bigger budgets, you may want to call upon Berkshire Consulting or Silver Lane Advisors.

Q: My son is interested in eventually taking over the firm I founded 25 years ago. That would be great, but he doesn’t have any entrepreneurial ability; in fact, the ink is hardly dry on his MBA. I’ve tried to give him the benefit of my own experience, but he just doesn’t have the chops I had at his age. How can I help him develop the skills he needs?

DeVoe: When older advisors envision the right person to take over from them, they often imagine themselves and the qualities they had many years ago. But that’s probably not the best person to run the company today. Twenty-five years ago, launching and developing your brand-new business took a skilled entrepreneur, which you were. At this stage of development, you probably need someone more like a chief operating officer or manager who can take your organization to the next level. If your son has good managerial skills, he may well be the perfect person to lead your firm into the future.

I would add: Transferring a firm to a family member is always problematic because of the resentment that can fester among staff members who hoped to be your successor. If you don’t want to lose key employees, you need to work hard to help them feel validated and appreciated in the context of this big new change.

I would counsel you to talk one-on-one with each member of your staff. Ask them how they feel about this transition, and what can be done to recognize their contribution to the firm’s success. The more time you take to do this, the stronger your bridge to the future will be.

Q: After 35 years as the head of my own planning firm, I’ve told my wife I want to retire at the end of next year. I have a succession plan in place, and feel that I’ll be leaving my company and clients in good hands. My wife suggests that I consider a gradual retirement instead of quitting cold turkey. What do you think about this?

DeVoe: We’re talking about a double-barreled transition: for you to exit the business, and for your successor to run it. Both are powerful changes.

For the last 35 years, your identity has been wrapped up in being the head of this firm. If you have concerns about losing your identity, staying involved to a lesser degree could help you make this transition more easily. You might discuss with your successor whether you can keep an office at the firm and come in one or two days a week.

I would add: After you’ve tried this for a while, you’ll know if you’ve achieved the right blend of semi-retirement with partial connection to your work identity. It might also be helpful to ask your wife whether the life balance you are practicing is working for the family.

Q: I’m a sole practitioner who has loved serving clients all these years. I don’t want to sell my business to anybody; I’d rather die with my boots on. What’s wrong with working till I drop?

DeVoe: I hear you saying you’re a dedicated advisor committed to your clients. Are you prepared for the last message they receive from you to be “Your advisor has expired; you’re on your own!”?

It’s important to let your clients know in advance what their future might hold once you are no longer around. At a minimum, you need to have a very short list of other advisors whose philosophy and level of service match your own. Ideally, you should have a written agreement with them so that if something happens to you, they will service your clients.

Q: I feel great about the planned merger of my practice with another firm. The other CEO will take over running the combined business next year. How do we make this big change go well for my employees, as well as the rest of the staff in our newly merged organization?

DeVoe: You may want to consider working with your staff to help them get smart about the nuts and bolts of this process. For example, there’s often a difference in leadership style between the current head of an organization and the person coming in, and different cultures among the two staffs.

Here’s an example of how to facilitate this transition well. Two years ago Tim Kochis, the head of Aspiriant, a wealth management firm, told his staff that he was planning to find a CEO successor and move into the chairman role. He merged his firm with Quintile, another wealth management firm headed by Rob Francais.

When they merged, they created a succession plan for Tim, and Rob moved into the CEO role. As part of that, Tim took a six-month sabbatical, creating the space for Rob to transition into his new leadership role. The staff didn’t have to wring its hands wondering which of the two was in control. Both Tim and Rob believe in sharing information with their staff as soon as possible, telegraphing what will happen next for the organization.

So we’re seeing two best practices in this example: first, starting the planning process as early as possible; and second, keeping your staff in the loop so they understand what will happen. Keeping people up to date helps them understand what their role may be in the new organization over the long term. This helps create a culture that will give them higher satisfaction over time.

Q: I have mixed feelings about whether anyone on my staff has the ability to assume ownership. I’m contemplating looking outside for a successor, but how do I know if that’s a good idea?

DeVoe: Each of the three successor options–internal, external, and transaction–has its advantages. An internal successor is going to be someone who fits seamlessly within your company’s culture, but may not have all of the skills on your wish list. On the other hand, the benefit of an external successor is that you get to hand-pick the skills and can focus on the cultural implications instead. With a transaction, whether it’s merging into a bigger firm or partnering with a third-party consolidator like Focus Financial Partners or Fiduciary Network, you can be even more selective about the capabilities you want to augment for your firm, such as investment management, relationship management, and leadership skills.

My conclusion: All of us have a human need to leave a legacy. The sooner you can gently turn your mind toward thinking about this and making solid plans, the better you’ll feel about the trajectory of your professional life.

Olivia Mellan, a speaker, coach, and business consultant, is the author with Sherry Christie of The Client Connection: How Advisors Can Build Bridges That Last, available through the Investment Advisor Bookstore at She also offers money psychology teleclasses for financial advisors and for the general public. E-mail Olivia at [email protected].


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