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.
