Overcoming RIAs’ Top 4 Business Hurdles: Succession Planning

I’m a strong proponent of patience when it comes to hiring—and looking beyond impressive Ivy League credentials to find the right needle in the haystack. In this situation, what an advisor wants is someone who understands their vision and their philosophy of financial planning. Advisors should ask themselves whether any of your current planners are future leaders. Have you created a culture of developing talent that feels empowered to step up in your place? What would happen to your firm if you were gone tomorrow?

One of the most powerful elements in a firm is its unique culture. Culture can help inspire collaboration and new ideas that encourage young planners to feel empowered, or culture can stifle young talent into a “don’t rock the boat” mentality. Advisors should assess their culture and decide if the right environment exists for strong, capable successors. 

Considering a Merger or Acquisition

What happens when advisors feel strongly about their culture and their staff, but find that their firms’ young planners lack the ambition, leadership or capital to invest in the firm long-term? Some advisors look to M&As.

If the option to look inward for a successor isn’t available, the proposition of selling a firm or merging with another can be very enticing from the outside looking in. In the right setting, a firm could stand to grow instantly in specialization, scalability, AUM; a merger or acquisition also solidifies a succession plan for an advisory firm.

From experience, I will say that there are pros and cons with a merger. The pros, noted above, are game-changing. But the cons are ones advisors don’t see coming. In a merger or acquisition, you are changing everything about your firm virtually overnight. Yes, everybody may have the same philosophy and want the same thing—to serve clients (I cannot stress enough that finding a firm that shares your beliefs and values is critical to success). But the growing pains, the transition, the merging of technology and cultures, these all take time and there will be bumps along the way.

M&As are not a “quick fix” for a succession plan, they require a deep commitment from everyone involved.

Getting Started

The most challenging part about planning for succession may be in actually starting the planning. I recommend taking this four-step approach to help start the process.

1. Get advice. Talk to peers. Do your research.
2. Create a vision for how you see your retirement.
3. Put that vision in writing.
4. Communicate that vision to your team.

The sooner advisors begin the process of planning for succession, the more time there will be to ensure the right decisions are made and the right people are involved along the way.

Read the complete blog series, Greg Friedman on Business Development.