At the 2013 National Association of Active Investment Managers Annual Conference, Kelli Cruz, a managing director at Pepin Consulting, addressed the importance of succession planning.
Among the most important reasons to have a succession plan is that clients are concerned about it. “What happens to the firm if something happens to you?” Cruz asked attendees on Tuesday.
The next generation of advisors is a vital part of succession planning. For many advisors, Cruz said, the “ideal solution [to succession planning] is an internal successor.” Furthermore, the earlier advisors begin planning, they more options they have available to them. “There’s less runway in front of you in terms of exit strategy,” Cruz said. However, just 36% of advisors have a plan to develop an internal successor.
Finally, she asked, “You plan for your clients’ retirement, but what about yours?”
Cruz referred to a survey her firm conducted for InvestmentNews in 2012. Most advisors want to exit their firms over time, she said, leaving the operations and day-to-day management of the business first.
According to that survey, half of the 400 respondents surveyed were in some stage of succession planning. However, 44% were just “planning to plan.” Of the 6% of respondents who had no plan, Cruz noted the median age was just 46, so their lack of a succession plan was more a reflection of where they were in their careers.
When it comes to transferring ownership of a practice, the biggest challenges are determining compensation and share valuation, Cruz said. To mitigate those challenges and increase the value of the firm, she suggested several objectives for advisors.