I recently participated in a panel on succession planning, and I was struck by how every question was asked from the perspective of the advisor alone. All anyone wanted to know was how they could extract the most value from the practice. No one in the audience seemed to care how their succession would impact others, especially those who were dependent on them.
This got me thinking about a point I once heard a well-respected executive make, that every business has five constituents:
- Your clients
- Your stakeholders
- Your employees
- Your vendors and external partners
- Your community
Whether the subject is succession planning or some other management decision, it’s helpful to approach the topic from all five points of view. How will the decision you make impact each, and how will each constituency react?
We often hear the word “constituents” from politicians describing the group they are currently pandering to. It would seem that in many aspects of our lives, but especially in politics, we’ve lost the ability to consider multiple points of view before taking a stand; and worse, we’ve lost our ability to empathize with another perspective. This narrow-mindedness ultimately corrupts the process of critical thinking and produces a subpar outcome. It’s a bit like having all the strong rowers paddle on the right side of the boat, while all the weak ones paddle on the left—instead of moving forward, the boat only moves in circles.
On the other hand, the danger in overanalyzing or attempting to achieve consensus is that you fail to make a decision out of fear that the action may prove offensive to one of your constituents. That is not the point of contemplating multiple perspectives. The point of weighing a decision based on who could be impacted is to determine whether there is an optimal approach that will create the best possible outcome—all things considered.
The context of succession planning demonstrates the power of multiple perspectives quite well.
Consider Your Clients
It’s not always about you. Sometimes it’s about your clients. This is especially true when planning your exit. During your career as an advisor, you fostered a codependency with your clients and became their most trusted counsel. You earned their trust and respect and they increasingly relied on you as they aged. Then just like that—Wham!—you tell your clients you’re checking out and their accounts will be turned over to someone else in your firm, or worse, to a complete stranger.
Imagine how those clients will feel if you have not prepared them for what you may have thought was inevitable. They were certain you would help them to the end of their time, then suddenly they are thrust into the situation of having to evaluate the person to whom you sold your practice or even search for a new advisor.
This is an especially meaningful dilemma for advisors who regard themselves as fiduciaries. By definition, all you do should be in the best interest of the client. How would a sudden disruption in the advisor-client relationship fit with this definition? Should providing for an orderly transition of your practice and considering the relationship your clients have with the firm be a component of this fiduciary duty?
Consider Your Stakeholders
Many advisory firms consist of multiple practitioners who operate within their own silos, sharing expenses or a common name but not really interacting with each other in a strategic way to build the enterprise and ensure continuity. Even in cases where the principals do act in harmony, there is often a tendency to assume the business relationship will last forever.
Whatever the scenario, advisory businesses containing multiple stakeholders must develop awareness of how they prepare their transition. Just as with residents in a condominium, the community could experience material disruption if the retiring principal stake is transferred to someone incompatible with the other stakeholders.