Advisers are constantly working with clients to help in every aspect of financial health and success.
They guide them in securing their future and, in some cases, assist them in planning to exit their businesses. They're well aware of the importance of careful planning in preparation for this major transition.
So why do so many advisers let succession planning take a back seat when it comes to their own firms?
According to Fidelity's RIA Benchmarking Study, approximately 67% of firms either don't have succession plans for their businesses or have plans that are not ready to be implemented. Overwhelmed by the thought of developing a comprehensive succession plan, many of the clients we work with fail to establish even an emergency, or “continuity” plan, leaving their business and their clients at risk.
Regardless of the size of your business, your age or your health, it is imperative that succession planning move way up in your list of “to do's”. Whether you're considering retirement, leaving the profession or growing your business through merger and acquisition, becoming intentional about the readiness and stability of your practice will help to set you up for greater success when it's time to ultimately transition.
Because this industry is relatively new when compared to longer-established professions like medicine and law, it can be difficult to know where to begin. Every firm owner's path into the advisory business and their structure are as unique as their background, expertise and the clients they serve. Therefore, it's advisable to create a formal plan – unique to your goals – that takes succession planning conversations to a higher level.
First of all, you need to begin asking the right questions. Don't start by asking the question, “How much is my firm worth?” Rushing into valuation can cause immediate friction with potential partners or successors. Far more effective and rewarding is taking an approach similar to how you work with your clients. Shift your mindset from the transactional details to considering what you really want for the next phase of your practice and life. When we work with advisers on succession planning, this is a critical part of the process that can't be rushed. It often takes significant reflection and the framing of scenarios to help the business owner get clear on his/her succession objectives.
Pershing's Mark Tibergien says most advisers are taking the wrong approach to succession planning.
One good way to begin is by working through some type of envisioning exercise in which you imagine your life after your transition.
1. Pick a date in the future—your transition date. Then answer the following questions:
• What stage of life are you in and where do you currently reside?
• How do you spend your time now?
• Do you travel or enjoy time with your family/friends?
• Do you volunteer or have important hobbies?
• Do you have/want a second career? Are you considering or receiving training/education for a particular goal?
• What other things are important to you right now?
2. Imagine potential business transition scenarios. And remember, just because you're thinking about these options doesn't mean that this is the eventual path you will take:
• List the values (employees, legacy, quick money, etc.) that are informing your consideration.
• Describe your thoughts about your life post-transition. Keep in mind that this is the same conversation many of your clients may struggle with because it's about more than money and assets. Family, health, quality of life and aspirations are important considerations.
• Talk with family, friends and colleagues about what your post-transition life looks like. How does it impact them? What considerations must you make after those conversations?
• What transition options might work for you (i.e. merger, internal succession, or sale) and why you are pondering this route.
This isn't a quick or simple process. However, once you've completed it, you'll be in a better position to consider the next phase of exploring different tracks to get you to a strategic succession plan that can be implemented.
What do you think? Have you started succession planning? Share your questions and concerns with David!
David Canter is executive vice president, practice management and consulting at Fidelity Institutional Wealth Services.