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Practice Management > Succession Planning

How Does This Movie End?

By Mark Tibergien

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It seems to me that all the preaching about succession planning is having the opposite effect on those we hope will get the message. It’s kind of like when your parents forbade you to hang out with “so-and-so”—and then you went out of your way to have a clandestine encounter with that person, even though you knew he or she was bad for you. To add emphasis, your rendezvous took place in the most disreputable location you could find.

Defiance is an adolescent trait that many boomers have carried over to adulthood. This defiance thrives in a hazy alternate reality where advisors don’t need to consider the future of their business. In this world, advisors choose to live in the moment rather than plan for the end. How else can we explain that less than 30% of the advisor population of a certain age has developed or implemented a succession plan for their business, as found by Moss Adams/InvestmentNews’ study, “Financial Performance Study of Advisory Firms”?

Well, after all, why would an advisor want to think about leaving something that provides them with income? Forget the money for a moment, what about his or her self-esteem? The business has defined them in their community. What will happen to their identity and status after retirement? Further, and even scarier, executing a succession plan might force them to focus on things they’ve never done well, like hiring and developing staff, managing to profitability, replenishing their client base and reducing dependency on themselves—all to make the business more transferable.

Think about it:

  • Most advisors have no interest in working with other people. It may be no coincidence that the feeling is mutual.
  • Most advisors aren’t emotionally or financially ready to retire; they have a lot of wood to chop before they get to that point.
  • Most advisors have been implanted with a chip that ensures their immortality until the end of time.

Furthermore, most advisors are not appreciated by their family (who just use them for money), so they intend to stay alive just to spite them.

Add to this the fact that most aging practices have little to no value because their aging client base has entered the decumulation phase. Why would anybody pay for a practice that is dead or dying?

Perhaps we should call for a moratorium on the subject of succession planning. Let’s just say no to the seminars, white papers and webcasts that exhort aging advisors to start taking care of business.

It doesn’t make sense to preach change and commitment to a group of immortal robots, unencumbered by family needs, sitting on a worthless asset while trying to milk their business for current income. All this talk of transitioning the business, taking care of heirs and ensuring that clients will be cared for once they pass is just a giant annoyance. Clearly, the message lacks allure for the average advisor.

Instead of succession planning, advisors could turn their attention to exploiting newly-minted financial planners from the likes of Texas Tech, paying them a pittance and having them do all the work. Advisors could limit their efforts to assist clients who pay them a lot of money but are too infirm or addled to demand attention. This would allow advisors to extract maximum income while minimizing their costs and time demands. It would also free them up to attend seminars and conferences where they could instruct their peers on the keys to success.

The moratorium on succession planning would also liberate money and time expended by custodians, broker-dealers and product vendors in promoting the need to plan for the eventual transition of an advisor’s practice. Honestly, if the advisor community hasn’t gotten it by now, how will more discussion provide a catalyst for behavior change? Sounds like good money chasing after bad.

If we stop discussing succession planning, the only group to feel the impact would be the scores of consultants who get paid thousands of dollars to help hundreds of advisors plan for a transition that rarely occurs. They are a little like the corn farmers producing crops for ethanol—their effort expends more energy than it produces.

A moratorium on the topic will be tough because the subject of succession planning generates a real moral dilemma. For a moment, at least, it causes the practice owner to think about what would happen to their clients if something were to happen to them. It gets them thinking about their legacy as a business owner, and the wealth they might leave for their spouse and kids. They also get a lump in their throat when they consider the impact on employees who were loyal to them through up and down times. If they exit in a coffin instead of a carriage, at least they won’t have to listen to all the whining as they pass those who depended on them. Dying with one’s boots on requires less thought and effort than planning.

The Pyrrhic victory of these defiant advisors would at least go down as something they created without the help, insight or opinions of those who have never walked in their shoes. What would happen if we just ignore the subject? What if we just let these aging advisors trudge toward the cliff, ever defiant and proud? Would it alter the rate of succession plans being implemented?

If you buy the argument that we’ve wasted too much on the subject of succession planning with very little to show for it, what other mission can we turn our attention to?

How about the future of financial advice? What if we invest in programs and ideas that make the advisory profession a compelling career choice for young people who are burdened by college debt or unchallenged in entry-level jobs? What if we systematically promote the rewarding opportunity to impact the lives of others, be intellectually stimulated, have a degree of independence—and get paid well for making a difference?

The financial services industry desperately needs new talent. If we declare a moratorium on the topic of succession planning, we could divert precious resources toward building a favorable industry brand among those under age 45. We could invest in education and training for the next generation of advisors and clients. We could provide talented new advisors with the guidance and perhaps even the capital required to run their own businesses without having to purchase someone else’s worn-out practice.

If you got this far without realizing that much of what I wrote is tongue in cheek, then I apologize for being abstruse. My hope is that you recognize that we as an industry are failing to create a legacy, especially for the independent advisory business. So the next time you hear somebody bring up the subject of succession planning, please do your part and ask, “What can you do to recruit, retain and develop the next generation of talent?”

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