Internal Succession Planning: How We Did It

It’s always been challenging for financial advisors to devote time and attention to succession planning. In the current pandemic environment, advisors are even more stretched, trying to stay connected to clients, keeping them informed, and still dealing with the normal activities of running a planning practice.

But succession planning is critical, especially today. Yes, the profession is graying, which has been the case for a while. But sometimes the unexpected happens, and it can be disastrous without a succession plan in place. Market risk is a given in our business, but we should all be thinking about personal health and planning for any eventuality.

Our profession is still in a phase where founders own the vast majority of advisory firms and a high percentage of those firms will not survive the founder’s retirement. There has been more talk about succession planning than real action. It remains to be seen how many firms actually transfer to the next generation even with the current focus on the issue.

A successful succession plan achieves a triple win:

1. For clients, who, as professionals, we have a responsibility to see cared for;
2. For retiring partners;
3. For the next generation of firm leaders.

Case History

While there are a variety of succession strategies you can pursue, the one we used in my advisory firm worked well for us. You might find our experience useful, no matter where you are in your practice life cycle.

We chose the path of internal succession because it provides the greatest opportunity to achieve the triple win. But internal succession plans take time and investment in developing people; ours started 15 years ago.

It wasn’t always easy, but now with six G2 or G3 owners, it has been rewarding. Our three founders all have successfully retired (but still remain clients). They received considerable compensation for their years building a successful practice, and the clients they had served for years have been well taken care of by advisors they trained and mentored.

Over the past 35 years, our firm has pursued a strategy of “tuck-ins” or “plug-ins,” an important element of the successful transition from the founders. We continue on this path, expanding our team with extremely qualified individuals who are aligned with our culture and philosophy, and who may, in time, become G3 and G4 owners.

More than 10 years ago, to help develop these tuck-ins, we instituted systematic professional development planning, along with specific career tracks for all team members. Several of our current owners were early to mid-career tuck-ins. In fact, I was a tuck-in 20 years ago and it was by far the best career decision I ever made.

Today, we are an ensemble business of approximately 30 team members, with six current owners. We provide financial planning and investment management to the mass affluent and manage in excess of $1 billion. Our ongoing success is due, in part, to our focus on internal succession planning.

Thanks to the foundation laid by our founding owners, succession planning is now part of our firm’s DNA, an element of our normal business thinking and operations. As second and third generation owners, we believe that we have a sustainable ownership structure and have shown the ability to solve the succession/continuity issue that many find challenging.

Our success has been a matter of maintaining laser focus on creating the triple win: clients, retiring partners, and our next-gen leadership. The journey hasn’t always been easy and requires a significant investment of time and money, but the effort has been well worth it.

And we are prepared for any eventuality.

Tim Wyman, CFP, J.D., is the Managing Partner at Center for Financial Planning, Inc. (www.centerfinplan.com). He served on the National Board of Directors for the Financial Planning Association and frequently speaks to organizations and businesses on financial planning topics.