Transferring ownership of one’s advisory practice is never easy. There are innumerable considerations in preparing for a transition that will be smooth, maintain a high level of client satisfaction and enable the business to retain its value and continue to grow.
When family is thrown into the mix, such matters can become even more complicated. While it may be comforting to imagine—when that fateful day arrives—you can simply hand over the reins to your son or daughter and let the next generation take charge, it’s rarely that simple. Moreover, a lack of sufficient forethought may be dangerous to your financial health and to your family’s well-being.
While everyone’s circumstances differ when planning a succession involving the next generation of family members, here are some top considerations to help you avoid the worst potential pitfalls:
1. Are the perspectives of parents and children aligned? An advisor thinking about relinquishing control may have a very different vision of the future than the child assuming it. Whereas, for instance, an advisor may imagine his life’s work expanding under his child’s direction to become an empire rivaling the next House of Rothschild, the child may view the business as a convenient means to earn a comfortable income that will enable him to take long vacations and sail around the world. Or, while the child may be champing at the bit to introduce new ideas and innovations to the ways in which the business has been run, the parent may bristle if business isn’t conducted exactly as before.
As such, there is no substitute for extensive communication between the two generations. There will inevitably be a process of give and take, as well as surprises. Getting these issues out in the open early and often will go a long way in heading off conflict.
2. Is ample time allotted for the transition process? Ideally, a transition mustn’t be rushed. The child (who may already be in his forties or fifties) needs sufficient time to fully master the business and assume ownership of the client relationships. Parent-owners cannot assume their heirs are prepared to step into their shoes without a process—often as long as ten years or more—of working together and slowly transitioning from one generation to the next.
Additionally, a long lead time will enable the heir to develop his or her own clientele as well as taking over the parent’s. Since the parent’s clients will tend to be older, enabling the child to develop his or her own client relationships will help the business ensure sustainability well into the future.