A primer for executing a succession plan

We have all seen the news — succession planning is all the rage in the adviser market today.

Many advisers are in their 50s or 60s, and they are thinking about retirement.

To be sure, the personal relationship these advisers have established with clients makes the transition difficult.

There appears to be a “dearth of talent” in the industry, with more opportunities for successors than there are qualified people to fill them.

An adviser might consider selling the business or look for an opportunity to affiliate with a larger firm and stay involved in the business.

Another alternative is the adviser selects a successor, only to find the person doesn’t work out as expected.

The decision to find someone to carry on is emotionally charged because the founder of the firm expects that the firm will continue in a similar manner.

However, a culture clash, a lack of motivation on the part of the successor or dueling egos can undermine a transition.

Sometimes, an adviser makes the decision to turn the business over to a successor before he or she is ready to leave.

Let’s face it, an adviser with a thriving business who wants to transition out of a practice has worked hard to develop relationships that are based on trust and performance, probably in that order. The clients — and the firm — matter.

The practice could have the owner’s name on the sign, and is the “baby” that the adviser has nurtured for years, making the decision to leave difficult.

The transition process is difficult. Taking the time to consider what constitutes success in this process is done infrequently.

Once the adviser decides that he or she is ready, the process to recruit a successor is treated like any other hiring exercise. Create a “job description,” find a recruiter and scan the market for the talent you need to fill the role.

If the adviser is honest, he or she will admit to searching for a “mini-me,” a person who looks like they did 20 or 30 years ago.

The adviser might hope to see the firm name continue indefinitely and to find someone who will do things exactly as he or she does.

It is important for a person facing a transition — or considering one — to ask, “Am I ready to do this? Why am I doing this and how motivated am I to make this work?” If there is any hesitation, the adviser will not be open enough to alternatives.

During the process, it is important to set priorities for the transition, with an emphasis on what matters most.

That includes retaining existing clients and employees, keeping the name of the firm, minimizing disruption for clients, or all of the above.

Taking the time to plan the priorities, to write the goals and to articulate them to a successor will help ensure the success of the transition.

Many times an adviser will set the priority as “cashing out” or “getting the most value from my firm.” These are fine goals, but to achieve them requires a well-developed plan and a method of measuring success.

An adviser needs to consider what he or she is willing to give up to a successor, and the changes he or she is willing for a successor to make to the firm. Surely, a successor will want to put his or her stamp on the business.

The process of finding someone should also include identifying the qualifications, and most importantly, making certain the cultural fit between the firm and the successor is a good one.

To get a better idea, ask the candidate to describe the business philosophy he or she will employ. What priorities does he or she have for the business? How much synergy and willingness to succeed in this business does he or she exhibit?

Last, the process must include bringing the clients into the fold — not “announcing” a transition once it happens, but rather implementing a process so the transition is smooth and easy.

In addition, set checkpoints once you have prioritized and worked with the successor to measure what is working and what is not.

Remember that a change in attitude, a change in process and a discipline about what you want to accomplish can greatly change the entire outcome — from disappointing to highly successful for all.

Beverly D. Flaxington is a principal of The Collaborative, a Medfield, Mass., firm that helps clients improve business practices.

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