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Practice Management > Succession Planning

Why You Need Another Advisor to Plan Your Succession

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Succession planning for independent advisors has been in the news lately—and for very good reasons. With Baby Boom advisors reaching retirement age, by some estimates as much as $4 trillion in client assets could change hands within the next 10 years or so. However, according to “The Future of Practice Management,” a survey of approximately 2,000 senior financial advisors by the FPA’s Research & Practice Institute released in December 2013, 41% of advisors want to sell their firms to a successor advisor. Yet only 25% have a succession plan in place and even at age 60 to 64, only 31% have a plan. (You can read more about the report in my March Investment Advisor column available on ThinkAdvisor and your mailboxes sometime next week.)

You might think that with all that has been written about succession planning recently, there isn’t much more to say. I was probably in that camp myself. Or at least I was until I read the February 2014 issue of Gary Pittsford’s client newsletter. Gary’s was one of the original NAPFA members in the early 1980s, and founder of Castle Wealth Advisors in Indianapolis, Ind., which specializes in financial planning for business owners and their families. Although this issue of his newsletter, titled “Picking Your Succession Advisors,” was meant for small business owners in general, it certainly applies to owner-advisors. It offers some very good advice that I haven’t seen anywhere else. 

As the title suggests, Gary is writing about the professionals that business owners should have on their team while devising and executing a succession plan, and suggests that owners “start picking your team of advisors three to five years before you intend to sell or transition the business. During those years leading up to the sale you want to spend some time each year with your advisors talking about planning ideas and what you can do to get the company ready for this important sale.”

His list includes the usual suspects, including an attorney—to create the proper transition documents—and an accountant, to consider the tax consequences, which can have a major impact on the financial outcome of the sale of a business. But he also includes a professional who, as I said, I’ve never seen anyone mention: a financial advisor. Here’s how Gary explains this suggestion: “It is important to have a financial advisor who can help you with decisions pertaining to assets that would be coming out of the company to you, and also the long term management of the sales proceeds and your retirement assets. During this process you will be moving from having a salary and corporate profits each year to having income generated by your sales proceeds and the personal investments that you have accumulated over the years. This is a big adjustment for most business owners and that is why planning is important two or three years before the sale.”

Yes, I’m aware that Gary is writing to owners of businesses. from dry cleaning chains to cement contractors, rather than financial advisors. But I also know, from my publishing consulting work with Angie Herbers, who’s a business consultant to independent advisors, that owner-advisors can benefit greatly from objective, third-party financial advice in their succession planning.

That’s due to the many emotional issues that advisors face when transitioning their firms (choosing successors, negotiating with successors, facing retirement or a reduced workload, etc., which Angie covers in depth in her white paper “The New Direction of Succession Planning“). Fortunately for Angie’s clients, she’s a trained financial planner.

In her work, Herbers has found that even succession planning consultants can have conflicts of interest with their owner-advisor clients, such as trying to represent the buyers as well as the seller(s), and closing the deal in order to get paid. That’s why I find Pittsford’s advice so compelling. The sale of their advisory firm is probably the most important financial transaction of advisors’ lives: they need someone to review the succession plan solely from their perspective, who has only their best interest to look out for. It’s not so different from why their clients need a professional financial advisor.


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