Tina Hohman, executive vice president at Alera Group Wealth Services in Deerfield, Ill., recalls an industry conference where she heard that more than 60% of advisory practices have no succession plan.
“It’s like the old fable of the cobbler whose children had no shoes,” she laments. “How can we be telling our clients to ensure they are protecting their clients and employees by having sound plans if we don’t do the same thing ourselves?”
The reasons for avoiding this crucial task may be complicated and deeply personal to you. But a changing of the guard at your firm is inevitable. Here are a few suggestions for how to get started.
Identifying A Successor
To be sure, no one wants to hasten their own phasing out. “This is a business that, unless your cognitive faculties start to go, you can work for many, many years,” says Brett Bernstein, CEO and co-founder of XML Financial Group in Rockville, Md. “However, this isn’t always the best thing.”
For a lucky few, it’s simple to hand down the business to a daughter or son. Other times it’s trickier. “For advisors who want the business to thrive after they’re gone, the single most important factor is identifying the successor,” says Robert Boeche, a partner at Shustak Reynolds & Partners, a San Diego-based law firm that specializes in financial services, business and securities law. “Some firms may have junior advisors who can naturally ascend into senior roles, but many advisors are solo practitioners, or reside at large aggregating firms, and do not have an identified successor.”
If it’s not obvious who is going to succeed you, Boeche recommends getting an early start on thinking about or even writing down what makes your business unique and appealing to your clients. “Find a successor who can continue those traditions,” he says.
It’s never too early to start. “I often say, you should start your business with the end in mind,” says Justin Goodbread, president of Knoxville, Tenn.-based WealthSource, which specializes in helping business owners plan for their exit. “Even if you’re years away from making a sale or exiting, the succession plan can be reviewed and modified on an annual basis.”
That said, you don’t want to leave your successors or staff in limbo for too long. “Doing so could breed resentment,” says Goodbread. “Instead, clearly communicate the plan and its timing from the onset.”
One way to ease the changeover is to step back gradually and delegate or share responsibilities with your staff. “This can allow you to identify and prepare the successor in a manner where mistakes may not be as costly as they would be,” he says.
Be mindful of diversity and inclusion, too. “Choose your successor from a culturally diverse talent pool that includes individuals from various backgrounds, ages, genders, and abilities,” Goodbread adds.
Looking Outside
In some cases it will be necessary to look outside the firm for new leadership. For instance, when the Malvern, Pa.-based Wharton Business Group found itself without a suitable in-house heir, it cast a wider net. Ultimately, the firm became part of the Alera Group, a transition that Wharton’s B.J. Webster, a managing partner, says was “seamless for our clients.”
Continuity of service is crucial. You must make sure that clients “get familiar with and build relationships with associate advisors and the entire team,” says Ken Van Leeuwen, managing director and founder of Van Leeuwen & Co. in Princeton, N.J. “This will serve to make the transition process much smoother.”
Your clients realize that a passing of the torch is unavoidable. By being up-front about it, you’ll help ease their anxieties and fears. “It isn’t just about your peace of mind and that of your stakeholders, but also your end clients and their next of kin,” says Michael Belluomini, vice president of mergers and acquisitions at the Carson Group in Omaha, Neb.
Don’t Procrastinate
Nevertheless, when it comes to succession planning, most advisors like to put things off.
“I have seen numerous cases of FAs over age 50 who have died without any plans in place,” says Ed Cofrancesco, CEO of International Assets Advisory in Orlando, Fla. “Their entire practice disintegrates without their estate reaping any benefit for their years of hard work.”
When, exactly, should an advisor start the planning process? There is no magic number. “At around 40, you really need to start thinking seriously about your long-term plans, and at 50, you need to implement your strategy to ensure that you can accomplish the succession in an acceptable time frame,” says Cofrancesco.
A succession plan is also a precaution against unexpected disaster. “Remember Covid?” asks Gary Schwartz, a registered financial consultant and founder of Madison Planning Group in White Plains, N.Y. “Principals need to put internal or external mechanisms in place to ensure an efficient operation in the case of an unforeseen event.”
Don’t Rush
On the other hand, a successful transition shouldn’t be rushed. “Most advisors care deeply about the clients they’ve worked with for years and often decades—and clients, in turn, have deeply personal and trusting relationships with their advisors,” says Michael Eckton, CEO and managing partner at Crestwood Advisors in Boston.
A smooth transition also requires the retention of key personnel. “Today, most comprehensive advisory relationships are team-centric in nature,” says Gerald Goldberg, CEO and co-founder of GYL Financial Synergies in West Hartford, Conn. Any success plan should include “strategies aimed at attracting, developing and retaining quality team members.”
Your vanity must be tempered, too. “Don’t define the business as your personality,” says David Canter, president of Bluespring Wealth Partners, an Austin, Texas-based acquirer of wealth management firms. “In other words, don’t embody the business [or think of it as] intrinsic and interchangeable with the principal or principals. Build an ensemble that works together in a cohesive fashion.”
Harold Buckner, Bluespring’s vice president of business consulting, adds that business owners “should really consider how they are structuring the business so that succession is natural.”
Also consider that the younger advisors who could be tapped to lead your firm in the future may have their own worthwhile ideas about how to improve the business. Such next-generation initiatives may include “increasing marketing efforts, revamping the website or technology, [or] upgrading old methods to help systematize and automate the business,” says Corey Briggs, a wealth manager at Plaza Advisory Group (a Steward Partners affiliate) in St. Louis.
Taking all this into account may seem daunting. But advisors who face the task will see benefits long before they turn out the lights for the last time.
A good succession plan will “guide their decision-making process month to month and year over year, and allow them to work towards their vision,” says Robert Lipsey, chief business counsel at the Hamburger Law Firm in New York City. “Failing to plan is planning to fail.”