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Practice Management > Succession Planning

Overcoming RIAs’ Top 4 Business Hurdles: Succession Planning

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Succession planning is a hot topic on every advisor’s mind these days, whether they’re looking at retirement or considering a merger or acquisition. In this series of blogs (Greg Friedman on Business Development), I’m covering the four biggest hurdles facing financial advisors today. Last time I shared some tips on how to manage changing technology; in this blog we’ll talk about all of the factors involved in planning for succession. 

2014: Implementing that Succession Plan

If 2013 was the year financial advisors started thinking about their succession plans, this is the year to start the actual planning. One of the biggest (and possibly most common) missteps in succession planning is procrastination. While the average age of the advisor continues to rise (mid-50s and counting) the competition for talented young planners has become fierce and the idea of M&A seems more and more attractive. But how does one get started on a plan for succession, and who has time for that anyway?

Trust me when I say that advisors need to make time, because putting off until tomorrow what should be done today means less and less time to make a smart, sound decision about one of the most important components of their lives.

Mapping Out Your Goals

Just what are your goals, anyway? Is it to absolutely maximize the dollar value of the firm to you? Is it to take great care of your clients consistently in the manner in which you have done in the past? Is it to provide for an internal succession plan to provide stability for your clients and employees?

The first step in planning for succession is to assess and clearly refine your goals. Aside from considering what’s best for your future, what’s best for the future of the business? Advisors need to envision what their own lives will look like once they’ve passed the torch to a successor or merged with another firm. Advisors should ask themselves: Do I intend to stay on in a merged firm as an advisor or mentor? Am I looking to leave my firm in the hands of capable internal partners while I sail across the globe?

An advisor’s personal goals for the future after succession play a key role in deciding the firm’s optimal path. 

Mining for the Right Successor

Many advisors look internally for their successor, and in this scenario, a great deal of time and attention should be spent on the hiring process.

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.


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