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Succession Plans: They're Not Just for the Big Financial Advisory Firms

Terry Mullen
Sep 11, 2017

Just as many people put off estate planning because no one wants the unpleasant task of planning for their eventual demise, many financial advisors procrastinate working on their succession plans. Whether you're the CEO of a major firm or an independent consultant with a small base of loyal clients, preparing for your ultimate exit is planning for a successful exit -- for you and your clients.

Think of it This Way: The Root Word of Succession Planning is "Success."

You've spent countless hours, decades perhaps, building a strong financial advisory business. You likely have loyal clients who have been with you for years, who count on you for consistent, reliable financial advice and wealth management services. When the time comes to retire, sell the business, step back due to health or personal issues, change careers, or even worse, leave this earth, you have two choices: leave the business (and your clients) in good hands or leave everything to chance.

As you can imagine, leaving the future to chance isn't satisfying to anyone involved. You'll likely lose sleep at night, worrying about the fate of the business you've worked so hard to build. Your employees may not have a job upon your exit or will face uncertainty as new, unvetted ownership takes over. And your clients. Where will they go? Who will take care of them the way you did?

Leaving the Business in Good Hands Requires Succession Planning

Planning for success is the better option. While it would be nice to be able to schedule a meeting with an expert and complete a succession plan in a matter of hours, in most cases, that's not how it works. Succession planning is an ongoing process, one that requires forethought, strategy, and mentoring.

Keep in mind that succession planning isn't just for the president or CEO. All key roles such as CFOs, controllers, financial analysts, and finance and private equity managers, should have a plan for succession.

Benefits of Succession Planning

You know the basics of why it's important to have a succession plan -- for your sake, the company's, your clients', and your employee's. However, there are a few more reasons. Succession planning can deliver benefits long before you hand over your role to a successor.

The benefits of succession planning include:

  • Tighter focus -- Remember when you first entered the financial services industry? You were focused and driven. You had your eye on the prize and worked hard to reach your goals. This description may still apply you, but you may have fallen into a routine. You might find yourself fighting fires more often than you want. Succession planning can help you refocus on what's important to your business. As part of the process, you'll do some serious soul searching to discover what qualities your business needs for your successor to have.
  • Improved employee morale -- Employees who understand that a leadership role is in their feature will likely feel more confident and valued. Employees crave career opportunities and career development, and your firm's succession plan can provide a roadmap for both.
  • Improved skills identification -- As you examine your workforce for potential leaders, you'll have a better sense of everyone's skills, strengths, and weaknesses. You may notice a skills gap, which can be addressed immediately via training or recruiting.
  • Better talent management -- You may have several potential candidates to succeed you when the time comes, but they're probably not quite ready to step into your shoes. That's okay because succession planning starts long before it's needed. Once you've identified candidates, you can begin mentoring or coaching them. You may want to send them to professional development workshops or offer tuition assistance toward an advanced financial degree. No matter what you do to help them grow professionally, your efforts will likely yield their benefits such as improved talent retention, increased employee loyalty, higher productivity, and so on.
  • Better knowledge management -- Imagine your senior advisors working closely with your firm's future leaders, sharing their insights, tips, and wisdom. Inevitably, your more senior advisors will retire, but they don't necessarily have to take their vast wealth of knowledge with them.
  • Improved agility -- You might have written your succession plan with the intention of leaving the company in 10, 15, 20, or 30 years, but the unexpected could happen. Your firm may grow faster than expected, requiring well-prepared leaders ready to keep the momentum going. If you've been grooming these future leaders from the beginning, they will be better equipped to handle the challenge.

Where to Start with Your Succession Plan

The time to begin is now; it doesn't need to be perfect to start as succession planning is an ongoing process. Use the tips below to get started.

  • Be clear about why you are succession planning. For example, are you nearing retirement or is one of your partners facing a terminal illness? Or are you simply preparing for the long haul? The more clarity you have now, the better you'll be able to develop the next steps.
  • Recruit partners. You don't have to make this YOUR project and yours alone. Get your senior team, the board of directors, human resources director, or partners involved in the process. Consider the future. No one knows what the future holds, but trends can give you some insight. For example, baby boomers are entering retirement. Look around your firm; will you be facing a staffing crisis in the next few years?
  • Align your succession plan with your strategic plan. This point should be a no-brainer. After all, your strategic plan details the firm's vision, goals, and action steps.
  • Identify potential successors or successor pools. Chances are, your company has a few candidates that could potentially step into your shoes when the time comes, especially with mentoring and professional development along the way. If not, figure out where you might find qualified candidates. This source could be your local branch of a professional association such as the Financial Planning Association, NAIFA, or NAPFA. It might be a college or university. Maybe it's a professional networking group.
  • Define and take action. You're clear about why you're succession planning, you have a team who's willing to help, you have an idea of what the future looks like in your organization, your vision aligns with your strategic plan, and you know where to look for potential successors -- now what? Define your next steps and take action.

Succession planning is crucial to any business, of any size, and it doesn't need to be overly hard or complicated. Taking action now will ensure that your firm's future is set up for success, even if you're no longer a part of it.

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