Sometimes when you pick up an interesting rock, you find squiggly bugs underneath. The same thing can happen when you're picking up your financial advisory firm and handing it over to a new advisor or heir apparent: lots of surprises. Even with meticulous planning, business transitions aren't always seamless.
Let's look at what a few true stories can teach us about dealing with these succession challenges. Take Mary (the names and details of her practice have been changed to protect her privacy, as they have been elsewhere). Over her 20-year career as a solo practitioner, Mary had been the trusted financial advisor to more than 100 families. A strong, skilled professional who pioneered a role for women in the industry, she enjoyed close relationships with her clients, many of whom were family and friends. When she decided to retire, she selected a successor she felt would have excellent chemistry with her clients. As part of their agreement, Mary would remain involved for one year, working with the new advisor to transition the business.
When that year was up, Mary remained active in the community, publishing a book and taking up speaking engagements. Since many of her former clients were her friends, she met them regularly at social events. From time to time, though, the topic of finances came up, and Mary occasionally found herself commenting on a former client's portfolio or financial strategy. Often, her observations would get back to the new advisor, when the clients would ask questions or pass along comments such as "Mary thinks I should do this," or "Mary suggested I ask you this." This unnerved her successor. Two years after her departure, Mary seemed to be coaching clients to second-guess her replacement.
Lesson learned: It is important that the advisor and her successor discuss the impact that casual conversation can have on clients. You must be clear when you're leaving that you will also stop giving advice.
It's Lonely Out There
Dave had been a member of a four-advisor practice, enjoying the collaboration and teamwork of the ensemble. But when a solo practice became available, literally in his backyard, he seized the opportunity to go out on his own. He hit it off with the owner of the new practice, Bob, who decided to relinquish the practice to him over the course of nine months. Bob then left the industry and moved on to an exciting new career. Dave successfully retained more than 98% of the households.
But then Dave was surprised by how lonely he was. Used to having a large staff for operational support and colleagues for stimulating intellectual conversation, Dave suddenly found himself alone in the office. He had not anticipated the solitude, much less the challenges of entrepreneurship.
Lesson learned: Before taking on a practice, you must honestly assess whether your personality and work style will allow you to adapt to the culture changes.
So Much To Do, So Little Time
Terry had a continuity agreement with another advisor in case he ever had to give up his practice, and had picked someone he greatly respected. He orchestrated the plan simply as a best practice, though he never thought he'd need to go through with it. But then his doctor hit him with a jarring piece of news: He had advanced cancer. Though most people would likely ask the question, "How long do I have left, Doc?" Terry asked in part because he still enjoyed his work, and didn't want to immediately give up his successful practice if he were going to be around for several years.
His doctor, unfortunately, couldn't give him a definite answer. Faced with this dilemma, Terry decided not to turn over his practice to someone else immediately. Instead, he let a few weeks pass while he explored how much he could handle physically.
Within a month, though, he knew that the fatigue associated with his illness was affecting his performance, and acknowledged that he could not keep his practice going. He struck a continuity agreement within weeks, which gave him and his successor time to meet with individual clients and help them adjust to the pending change. Terry passed away not long after that, but all of the clients stayed with his replacement.
Lesson learned: Establish a continuity agreement with an advisor you trust, and if you must execute it, do it quickly; each day is critical when you're preparing clients to work with a new advisor.