Succession Planning: What Are You Afraid Of?

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.