Practice Management is a key area that broker-dealers have identified as a way that they can provide value to their affiliated advisors, and one of the main areas encompassed by practice management is clearly the area of succession planning.

The reason that B/D's, and outside consultants as well, can provide a lot of value in helping with succession planning is because it is so misunderstood in the field.  You get the feeling that it is one of those areas that a lot of financial professionals really think will take care of itself when the time comes - like planning your own funeral (undoubtedly in a subconscious way). It is something that when the time comes, it will get taken care of, somehow. But, once delved into, the ugly realities surface, and near panic can ensue. To understand this, we must go back in time to discover what has lead us to this point.

In the early days, before financial planning and financial advice ascended to the place it now occupies, the few people who engaged in it probably worked in the trust department at a bank. As for the vast majority of Americans, they bought their investments, stocks and bonds mainly, sold to them by their broker - a salesman. Same with insurance. In fact, insurance professionals in those days, the days before "agents," were actually called insurance salesman (I use the male tense, since in the early days it was an industry pretty much dominated by men). Being a salesman wasn't a derogatory term back then.

The broker sold a stock to the client and received a commission for having done so. Likewise with the insurance salesman. The very best went on to become top producers at brokerage firms or to have their very own insurance agencies. But still, every morning, they would have to get up and sell something since, in jungle parlance, you could eat only what you killed. You didn't sell, you didn't make
any money.

Closing a client and getting good referrals from them were the ways that you were taught to survive in the business.  Keep going back to clients who already said 'Yes' and then talk to their friends, family members and co-workers to keep making money and stay in business.

You could annuitize your business, slightly, by getting annual renewals on insurance policies you sold and, as a broker, if you kept buying and selling stocks to the same client (churning, in essence) you could get the commissions on both sides of the trade. So, that at least took some of the pressure off since these existing clients could be counted on for future business, and as you built your book, the more future business you could possibly count on. End of the year bonuses to top sales people helped as well. The better the producer, of course, the larger the bonus. Top, top producers were certainly in 'Fat City'. Cash, cars, trips, a Rolex, all went to top salesmen.

Still, through all of this, a producer had to keep on selling. The thing that set them apart from 99% of the general public was one thing - their ability to close. They could close sales and keep the money coming in - and they didn't get tired of it. Each day, day-in and day-out, they could get up in the morning, go back out there and keep closing. Not an easy thing to do, at all. And this is where all of the trouble with succession planning begins. Who knew, with certainty, what would happen tomorrow?

Oh sure, as long as the top-producer and major rainmaker was still out there, still breaking his back going after sale after sale, producing as he had been for decades, an accountant could, more or less, sort-of annuitize that. You could take years of production and average it out over, say, five years and come up with a reasonable estimate - or a reasonable valuation.

But, my friends, succession planning and the sale or transfer of a practice isn't about that. It's about the transference of that practice from that producer to a new one. And, as we all know, even if the new producer is pretty good in their own right, this is a relationship business. Clients are very much like juries. Who knows what they are going to do? Will they like the new producer taking over? Will they decide that now is the time to listen to new pitches from new financial planners wanting to work with them? Who knows. And that is very hard to evaluate; after all, in this situation, just what can you count on?

So, the time has come. The lifelong, successful, producer decides it is time to retire and wants to sell their practice. They have done well. They have earned six figures a year, for years now. Their clients love them.  They invite them to their homes for barbeques, invite them to weddings and christenings, they play golf with them and yes, even attend their funerals, unfortunately. The producer has dabbled somewhat with fee-based accounts, but its probably less than 10% of the assets invested by their clients. The veteran producer, however, feels very good about their book, their clients and the fact that they've taken, maybe millions out of the place, all told, over all of the years. It's got to be worth a lot.