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3 Top Tips on Multi-Gen Succession Planning

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Independent financial advisors who are ready to retire often seek expert guidance on how to execute succession planning deals with younger advisors.

But independent advisors with family heirs to their business may not always feel the same need to connect with experts on how best to transfer their business to the next generation of their family.  And this can lead to serious missteps.

Indeed, when family is involved, financials and business realities can take a back seat to emotions.

Even when passing a practice onto adult children or other relatives functions as an inheritance instead of a purchase that funds the seller’s retirement, the transaction should undergo the process of a rigorous business valuation, analysis of the client base, and consideration of where the succeeding advisor plans to take the practice in the future.

Furthermore, timing matters. Advisors who plan to retire in a year face different challenges than those who plan to retire in six years.

Similarly, advisors turning the business over to a single generation of heirs have different options than those who have heirs of multiple generations — for instance both adult children and adult grandchildren — who are ready to assume stakes in the business.

Here are three best practices for conducting multigenerational succession planning for an advisory practice.

1. Seek out consultants who can help create a succession plan that fits your needs.

If you and your family have either not thought out, or not openly discussed, every single option and contingency about passing on the practice, an expert consultant becomes vital. If nothing else, a consultant can provide an objective perspective on when and how the next-generation advisor should interact with staff and clients for smooth leadership transitions.

Depending on whether you have a long- or short-range window, consultants can offer different insights on how to build toward the transition. The longer the window, the more flexibility a family has in structuring the process, but that extended time frame also brings more potential for unanticipated changes in the priorities and circumstances of each party.

The shorter the window, especially for time frames under three years, the more the family needs a tightly defined transition process to which both parties adhere.

To this end, consultants should be able to facilitate workshops, mentoring and peer coaching for families involved in multi-generational practices. Workshops can incorporate training materials and feature noted industry speakers. Mentoring and peer coaching ought to bring together different families at various stages of transitioning advisory practices.

Mentors are best suited to detail successful strategies to those just beginning the process, while peer coaches are best suited to share their own challenges and responses during the transition process.

2. Strike a balance between professional and personal goals. 

When dealing with family, it’s easy to forget that the practice is a business first and foremost. That means exiting advisors must determine early on whether heirs are in fact the best people to take over the practice.

Similarly, the exiting advisor must then determine whether his or her goal is to profit, pass on wealth, or some combination.

For example, adult children who grow up in the business and have the capital to purchase practices from their parents may be ideal candidates to take over while allowing the exiting advisor to turn a profit over an extended earn-out period.

On the other hand, adult children with the skill to take over the practice but not the capital to purchase it may lead exiting advisors to view transitions as a way to pass on wealth to heirs. Then there are situations where adult children simply are not experienced enough to take over their parents’ practices during the time frame the advisor plans to exit.

3. Put your heirs in a position to succeed well before the transition occurs.

This can be accomplished by collaborating with the next generation to bring on the appropriate staff and technology, and by aligning with an independent advisory and brokerage  firm that supports the multi-generational advisory model. In other words, exiting advisors should manage the transition with as many useful resources as possible.

The next generation of a family practice will have his or her own ideas about the people and tools needed to maximize future growth, establish a niche or reshape the business into their preferred lifestyle practice.

This may require hiring new specialists and experimenting with different portfolio management or CRM software. Getting the team and the clients up to speed gradually may help internal morale and account retention.

Finally, it’s worth considering how an independent advisor and broker partner firm can assist families every step of the way.

Some firms provide consultants who can address all of these issues, and host annual conferences featuring family-friendly activities that makes it easy for advisors to introduce their children and grandchildren to the business at an early age.

By its very nature, the act of building and sustaining a multi-generational family-run practice should be something that advisors seek expert guidance on, rather than attempt to accomplish it on their own.


Patrick Farrell is CEO of Investacorp, a Miami-based independent advisory and brokerage subsidiary firm of Ladenburg Thalmann Financial Services.


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