What will your clients do if something happens to you?

There comes a time when most advisors wonder: “Did I devote the same level of care to my financial life as I gave to my clients’ lives? Did I follow my own advice? Am I prepared for the future?” These questions hit closest to home for advisors contemplating the next chapter of their lives.

So, do you have a solid plan in place? What do you tell clients who ask, “What will happen to me if something happens to you?”

Since the 1980s, I have counseled advisors of all stripes on the need to plan for the end of their career. Yet in spite of my efforts and the efforts of many others, a very small percentage of advisors possess an actionable succession plan. This has been very lonely missionary work, perhaps on a par with Mitt Romney in Paris.

Why has our profession failed to create a more natural process for advisors to transition out while their successors transition in? Upon reflection, I see that most of my advice was framed in terms of economics, the advisor’s obligation to clients and their responsibility to the people in their practices. Typically we discussed valuation, payment terms, restrictive covenant agreements and compensation models until we were blue in the face. From a logical standpoint, the arguments were always compelling and usually fact-based.

Now I realize that we failed to call advisors to action because we did not discuss their underlying reasons for avoiding this critical task. What do advisors fear? Many may not have saved adequately for their own retirement, for example. Others may fear becoming less relevant. Still others worry about what they will do if they leave the profession. The list of fears (or excuses, if you will) is endless.

This dilemma reminds me of a conversation I had with a former colleague, an avid mountain climber, who had reached the summits of many of the world’s major peaks. I asked her, “Did you ever have a fear of heights?” She replied, “No, just a fear of falling.”

Fear can propel us forward or stop us in our tracks. When paralyzed by indecision, I try to isolate the issues and work through a “yes or no” process for each one. This allows me to identify problems that are hanging over me, air them out, discuss them with people who can help and then finally act.

With this in mind, I’ve created a list of questions for advisory firm owners and potential successors to discuss and resolve:

  • Do I believe my assets are sufficient to generate the cash flow needed to sustain my lifestyle?

  • Do I have the passion and energy to commit to serving my clients at the level to which they have become accustomed?

  • Do I have confidence in the person (or people) to whom I would transition my business?

  • Do I know what activities will keep me engaged in life from the moment I leave this business?

  • Do I feel the need to stay active in this business for any reason?

  • Will my clients benefit from the transition of my practice?

  • Will my family benefit from my leaving the business?

  • Will anyone be harmed by this decision?

  • Do I have an idea of where I can make an impact besides this business?

  • Do I fear I will lose my stature in the community?

  • Do I fear I will become less relevant to the people I know and work with?

  • Do I fear that not having a place to work will imperil my relationship with my spouse?

  • Do I believe I have not accomplished enough during my career?

  • Do I believe I still have something to prove in this business?

  • Do I have a plan for my life for the next five years?

  • If I need to stay for economic reasons, is there a way to transition my clients to ensure they are tended to for the foreseeable future?

While not a complete list, these issues typically hinder the development of advisor transition plans. Framed as yes or no questions, they can foster the important discussions needed to move the process forward.

Self-examination takes time and effort. Some advisors retain a life coach or counselor to help them work through the questions, a process that can consume many months. Every answer carries emotional baggage that must be sorted through. Even when progress is made toward a concrete plan, many relapse back into the discussion as a means of avoiding tough decisions.

What is causing you to delay a plan that will benefit you, your family, your clients, your employees and your partners? These questions should help you identify the specific fears that are holding you back. If your answers show low confidence in your successors, for example, then you can work on their preparedness. If your answers reveal that you don’t believe anyone else is capable of serving your clients well, then you may want to get your head examined by a professional.

Unhealthy dynamics can hobble a firm as it looks to transition leadership. I’m thinking of one firm that had successfully transitioned to the second generation of owners, who had reached retirement age themselves. One of these two senior partners was prepared to exit, but the other was not. The junior partners were not willing to execute a buy-out plan with the one who was ready to transition until the second partner was on board. They wished to avoid assuming a large mortgage to purchase the practice while weighed down by the intransigence of the remaining partner. Without a clear plan, the firm was stuck.

When a firm leader lacks self-awareness, another team member may need to point out behavior that has become selfish, controlling, unreasonable or unrealistic. In an ideal world, a leader would recognize the correct time to retire—but this requires a level of introspection that is not always easy for people near the end of their working lives.

Advisors should set rules of engagement for civil and productive discussions. In my consulting days, I worked with scores of advisors who calmly negotiated the numbers and terms then suddenly exploded at some perceived personal slight. It’s important to understand how painful this process can be for advisors who have dedicated their lives to the business. In many ways, retiring advisors experience the five stages of grief as outlined by psychiatrist Elisabeth Kübler-Ross: shock and denial, anger, bargaining, depression and finally, acceptance and hope.

As anyone who has witnessed or lived through this mourning process knows, those who are grieving can lash out in anger. Recipients of this wrath, also invested in the health of the business and their own futures, often respond aggressively—adding fuel to the fire.

It takes patience and open communication to navigate change. Retiring advisors must unpack their emotional baggage and put together a workable succession plan. Younger advisors hoping to take over a senior advisor’s practice face the most challenging experience of their professional lives: coaching respected leaders through the emotional stages of the transition so that, in the end, both have what is best for themselves, their clients and the business.