Bill Good: A Guide to Retirement Planning for Advisors

Succession Planning 101

You really have only two scenarios that you can consider for your succession plan.

Scenario 1 = Bring in a family member.

Scenario 2 = Find an outside buyer.

There is a third scenario, however, which you don’t want.

Scenario 3 = Fire sale.

This happens to you when you can’t or don’t want to work anymore, starting tomorrow. It is not really part of a succession plan, but rather is an emergency plan.

Let’s take a closer look at the two succession plan scenarios.

Turn Your Business Over to a Family Member

I see this a lot. I see father to daughter, mother to son, uncle to niece or nephew and all other possible combinations.

As a survivor of two decades or longer of hard work, your yearly income is most likely in the top 1%. Depending on where you live, that’s somewhere between $200,000 and $700,000 a year, says the Economic Policy Institute.

These numbers are not at all uncommon for FAs who have been in the industry 20 years or more. (Your chosen successor may have no reasonable possibility to enjoy what you have enjoyed unless they can step into your shoes.)

As we look at this scenario, I want to start with the two basic mistakes I see “seniors” committing.

Mistake #1

The senior tells the junior, “I want you to do what I did. It’s important that you know you could do it on your own. So, I want you to cold call for a while, and once you have shown that you can bring in assets, I’ll make you part of the business.”

This almost always fails. Why?

Things are different now than when you came into the business. Back in the ‘80s or ‘90s, it was a 99% transaction heaven. You could open an account with 1,000 shares of a $10 stock. Not a problem. You then would develop the account. That was the game.

But today, especially if you are with a national firm, you don’t get paid on accounts with less than, say, $250,000. This means your 25-year-old child is supposed to sit down with affluent or wealthy prospects and convince them to give an obviously new advisor a substantial part of their net worth.

That’s very, very difficult and almost always fails.

Mistake #2

Make your junior a servicing advisor.

This is, frankly, insidious. Your junior passes all the tests, does whatever training the firm has, and you assign him or her the bottom 10% or 20% of the book. He or she is expected to call them, develop them, find additional assets, and if nothing else, stay in touch.

I have watched countless numbers of these arrangements fail. After a couple of years, what you have is an advisor with a “servicing mentality” — not a “sales mentality.” And when the former sets in, it is virtually impossible to break.

If your junior servicing advisor takes over your business, he or she has just inherited a dying business — because they don’t know how to reach out and find someone beyond your centers of influence who can bring in fresh assets.

Because I’m in a good mood, I’m posting a copy of my “Senior Junior” partnership document on our FA Retirement Readiness website. If this is the scenario you would like to pursue, you need to go download this, absorb it and implement it.

Find an Outside Buyer

There is certainly a movement in the industry to buy up practices of retiring advisors. Some of these are being snapped up by large RIAs. Others are being purchased by FAs who have decided the best way to grow a business is to just go buy one.

You have several challenges to make this work. But make no mistake about it: It can work. Obviously, you need to find the right person. The only guidance I can give you in this regard is to rely on the salesperson skills you’ve acquired over a business lifetime.

You have developed a sense of people. When talking to a prospect, you may get little second-thoughts rattling around the back of your mind. You have probably learned to listen to these. And so, you don’t pursue what otherwise looks like a good prospect.

It’s the same with finding the right person to take over your business. Listen to those second thoughts.

Now get a price. You can certainly use the rough formula I gave you, but you should get an appraisal of your business. While you could probably go to a local CPA firm, you could also turn to an organization like FP Transitions, for instance, to do a business appraisal. This group also works as a broker and helps advisors buy and sell practices. So, it knows prices and can therefore provide an appraised value based upon actual selling-price data.

You Need a Transition

Most people do not resist change as such. They do resist dramatic change.

You find a buyer. You make the announcement. You’re gone.

Not a good strategy at all.

Best bet is once you finalize your deal, you must stick around for a year. Again, you are selling clients with assets — not just assets. There needs to be a gradual hand-off.

But there should be a hand-off. I counsel my clients who are selling a business or buying one that the seller should, at a point, leave and be done with it.

Go on and create version 2.0 or 3.0 of your life.

Bill Good is founder and CEO of Bill Good Marketing. He is the author of “the” book on prospecting in financial services, “Hot Prospects.” He created the Bill Good Marketing System and has been named one of the industry’s top five coaches. In partnership with Chad Henry, he developed the Chad Henry Master Class, which teaches all aspects of seminar marketing — from the invitation and presentation to the office appointments. Learn more at www.billgoodmarketing.com or call Jill Jackson at 888-495-7303.