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.