Advisors who attended the initial workshop at Fidelity's Inside Track conference had a chance to determine what track is the best for them to exit the industry.
75% of advisors are not prepared for succession. The lack of well-thought-out exit plans is truly an industry dilemma, as older advisors are like freight trains cruising at the highest speeds with the tracks about to run out.
That analogy is fitting, as Fidelity Institutional Wealth Services encouraged and assisted advisors to pick the right track for their future succession at their Inside Track conference in Boston, Mass.
Waldemar Kohl, VP, (left) and David Canter, EVP, (right) of FIWS seen in front of the signage promoting the three tracks they recommended advisors to consider.
Kohl led a three-hour workshop that took a different approach than many other succession plan presentations at other conferences. Rather than focus on the valuations of a buy-sell agreement, Fidelity pushed advisors to determine what drives them before skipping ahead to the transaction details. Once they know what they want for the future, it is much easier for advisors to take a step forward. This tact is quite possibly the approach advisors seem to be missing.
Kohl warned advisors that if they do not focus on the what and why, they might not end up where they want to be. The hurdles that hold advisors back might be that they have to admit they are getting older or that they will eventually lose control of a business. Instead of thinking about succession planning as something to do when advisors are "half dead," they should focus on making sure clients will be taken care of and that the value of the business is preserved.
There are too many stories of advisors who were not prepared when something devastating happened to them, leaving their clients, staff and family in an even worse situation. Yet statistics show that not enough advisors are focusing on this issue.
While three quarter of advisors are not prepared for succession, Fidelity's Benchmarking Study shows that 32% of owners plan to transition ownership within the next 10 years. On top of that, the same study showed that more than 66% of advisors want to have an internal transition, which can take more time than one might assume.
Think About What Would Be Best
To start a new program, advisors need to realize what they want. Kohl showed a great quote by George Bernard Shaw to reinforce this: 'Imagination is the beginning of creation.'
If advisors can have a clear understanding of their future path, they are more likely to start heading in the right direction. Kohl encouraged the attendees to imagine their future post-transition. In a show of hands, half of the advisors admitted to having some difficulty with this exercise after they were asked to do it.
Attendees were then given cards with goals including, "Keeping current culture of my firm" and "Maximizing market sale value." The attendees were asked to determine which cards were important to them and choose the three greatest priorities. When they got to this point, they were asked to flip over the cards that had a subtle three-color coding system. This allowed the attendees to get a rough idea of what track they were in.
The three tracks were:
Track 1: Internal Transition
Advisors who leaned this way were interested in handing over the reins to a junior advisor, family member or internal staff member.
Track 2: Merge And Stay Involved
Advisors who fell in this category need to find like-minded advisors with similar business cultures, servicing philosophies and technologies.
Track 3: Sell And Move On
Advisors in this track typically want a faster exit and are OK with handing over the reins to another individual or organization.
Advisors also got advice on these topics:
Timing. Start early - 10 or even 20 years before it is time to exit.
New firms. Work with your accountant if leaving a broker-dealer, as shares are virtually worth zero at that point, so it might be a good time to transfer ownership to the next generation (especially if they are family members).
Client interactions. Give the successor as much exposure as possible to gain credibility and increase retention rates.
Determine if a clean break is the right thing to do.
More than valuations. There are several factors that can influence a decision, so do not just look for the best price.
Learn from others. Notice what the first generation of sole-practitioner RIAs are doing and see what precedents are set.
Let it sink in that at some point in time, control is going to be given up, like it or not.
Kohl ended his presentation with a quote from author Gary Collins: "We can try to avoid making choices by doing nothing, but even that is a decision."
Canter, who opened up the workshop, hinted that there will be more support coming from Fidelity on this topic. In talking about financing support, Canter said, "Hopefully by the end of the year we will have a solution that folks can evaluate."
Bob Oros, executive vice president at Fidelity Institutional Wealth Services, had relevant advice in the general session. He encouraged attendees to leave the conference and find someone to hold them accountable, as too often advisors come to conferences and get great ideas, but then do not do anything about them. One thing most advisors should put on their list of things to do is to work with a relationship manager, consultant or friend to make sure they put a succession plan in place.
Mike Byrnes founded Byrnes Consulting to provide consulting services to help advisors become even more successful. His expertise is in business planning, marketing strategy, business development, client service and management effectiveness, along with several other areas. Read more at www.byrnesconsulting.com.