Practice Management > Succession Planning

Cherish the Young(er)

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A few years back an advisor friend of mine and I were talking about religion (stick with me, there’s an advisor angle here). Being a typically curious advisor-type who was engaged in a newfound spiritual quest, but not having had anything in the way of a religious upbringing himself, he asked an interesting question about the Roman Catholic faith. Why would any group that wanted strong leaders and to keep the institution healthy for the long run, he wondered, insist that its current leaders should have no issue? It was a good question, and while I answered with the common rationales for celibacy, I’ve since related the question to advisors. Really.

If you are serious about your commitment to your clients, you should be thinking beyond your own span of days to when you shake off this mortal coil and head to your own reward, and plan for who will take care of those clients after you’re retired or dead. They’ve put their trust in you, they expect you to be a fiduciary on their behalf, you’ve fostered the value of a long-term relationship to benefit them (and you, of course.) Yet the statistics on advisors and their succession plans are stark: Most advisors do not have a serious, written succession plan. Moreover, it’s not just your demise we’re talking about—considering the average age of advisors these days, you know it’s more likely that you’ll be disabled and unable to work than that you’ll die anytime soon.

So what’s the planned fallback for your clients and your family? Using the Occam’s Razor approach, the simplest answer is all around you: the folks who work with you in your practice. After all, they should have a very similar approach to working with clients, they actually know the clients and they’re intimate with your systems and processes—technology included—and your custodian or broker-dealer or outsourcing partners.

Do you see your colleagues as your successors? Many older advisors who have founded their practices and pioneered the independent advisor model are wary of the younger generation and are loathe to give up any control. That’s understandable, but it’s also short-sighted, especially for your clients. Moreover, if you’re thinking of a future liquidity event where somebody will finally reward you for all that pioneering work, you’d better be informed about what your practice is actually worth.

There are plenty of consultants and law firms and roll-up firms that would help you for a price and most custodians and BDs have succession planning resources. I think it would be wise to get such professional help in terms of valuing your practice and being realistic about the time it will take for a somewhat lucrative exit for yourself.

But in the meantime, make sure you take advantage of the succession and exit planning human capital resources that are all around you. Allow your younger employees to use the skills they’re more likely to possess than you, such as in technology and communications methods like the use of social media, while you teach them your hard-earned skills of sales and business building and client service. You’re not giving away the store, you’re looking out for your clients.