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Practice Management > Building Your Business

Succession Planning: Just be SMART

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Making ethical decisions in marketing, sales, operations and customer service is simply good for business—period. But if you buy this proposition, how do you explain why so many advisors have failed to develop a plan for assuring the continuation of their practice when they get sick, die or retire?

It’s shocking, isn’t it? As advisors, we accept the notion that people should backstop the commitments they’ve made to the significant people in their lives. Thus, we strongly suggest our clients create a trust (and fund it), buy life insurance, name guardians for their children, and keep their investment beneficiary designations current. We preach responsible forethought because it’s the only way to prevent chaos when (not “if”) life takes its unexpected turns.

Unfortunately, forethought often vanishes when it comes to advisors themselves. Even though LIMRA tells us the average age of a career agent is 58 (52 for independent advisors), few have developed a plan for when they’re no longer able or willing to work. In fact, according to NFP Advisor Service Group, 42 percent of financial advisors who are two years or less from retirement have taken no steps to plan for that event.

Why do advisors fail to plan?  Some believe they’ll never get sick or never retire. Others say they don’t have the time. Still, others insist no one would be willing to buy their business, so succession planning would be a waste. Whatever the excuse—and it is an excuse—failing to plan can have devastating consequences when disability or death strikes or when time comes to retire. The three main ones are:

    • The practice just fades away, leaving everyone connected with it in the lurch.
    • If the business is sold, the advisor gets less value (or no value) for it.
    • The sale proceeds are not immediately available; i.e., the buyer insists on paying via promissory note, with cash paid only when certain future conditions are fulfilled.

Compare these outcomes with what can happen with proper succession planning:

    • The advisor’s dream for the business is fulfilled; it is passed to new, qualified ownership.
    • The culture and values the advisor worked so hard to instill are protected for the future.
    • Clients who have placed their faith in the business continue to receive capable advice and service.
    • The advisor is able to monetize years of hard work, receiving a lump sum in order to fund a secure retirement.

Still on the fence about the necessity of succession planning? Then I urge you to use the National Ethics Association’s SMART Ethical Decision Making Model (EDM) to view this issue through a principled lens. Here’s how:

1. Study your options carefully. In this regard, we recommend tapping into association, RIA/FMO/BD, and third-party consultant resources dedicated to helping advisors with succession planning. There are plenty out there.

2. Make a mental note of everyone involved. Here, seek to understand whom your planning (or lack of planning) will affect.

3. Assess how each party will benefit or suffer from each option. Then infer your ethical duty to each party and how to execute that duty. Thinking as a fiduciary will help clarify this for you.

4. Reflect on whether you’d be able to sleep after making each choice. Ponder how you’d feel if your business disintegrated when proper planning might have saved it.

Total up all the factors and reach a decision.

In short, if you want to exit the industry the SMART way, don’t put off planning any longer. Do the ethical thing and begin planning your transition today. Your clients, colleagues, partners and family will appreciate your forethought.


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