Be a fiduciary: Plan your succession

Jan 26, 2014 @ 12:01 am (Updated 7:01 pm) EST

Succession planning is like getting a generator for when the power goes out. You know you should have one, but if the need isn't staring you in the face (and when it is staring you in the face, of course, it's too late), the idea falls by the wayside.

Indeed, ask 10 financial advisers what they think about having a succession plan, and nine probably will say it's a good idea. But six or seven probably also will say they don't have one. Whether it's the fear of thinking about the end of a career, a reluctance to tackle a difficult and multifaceted process or simply inertia, succession planning too often goes wanting.


The demographics don't lie. According to Cerulli Associates Inc., the average adviser at a registered investment advisory firm is 51, with firm principals likely several years older. Fresh data from the Financial Planning Association show that only a quarter of advisers have a formal succession plan, with fewer than half of advisers 65 and over putting formal plans in place.

And while in the case of the never-bought generator, you and your family will be the only ones suffering when the power goes out, the lack of a succession plan can affect every one of your clients. And don't forget your employees. When you boil it down, succession planning is really a fiduciary issue.

Too often, when advisers start to contemplate succession planning, they scan the advisory landscape to see who's buying whom and what valuations advisory practices are worth at that particular moment. Perhaps they have a longtime friend or associate in the business who they think might be a good partner in succession. In any case, this kind of “planning” isn't nearly sufficient and won't get the job done.

Think of it in terms of setting up a financial plan for a client and everything that goes into that process. Should you spend less time on your own succession plan (including regular reviews) than you do on a client's financial plan?


That said, there appears to be good news emerging on this front. InvestmentNews' Trevor Hunnicutt reported last week that consulting firms specializing in brokering, structuring and providing legal advice on deals involving RIAs are seeing more and more firms broadening ownership or facilitating sales to junior partners.

David Selig of Advice Dynamics Partners called it a “succession tidal wave'' while FP Transitions, a boutique mergers-and-acquisitions firm that focuses on independent advisory shops, reports closing 14 internal succession plans already this year, after managing 20 in all of 2013.

The push for succession planning is tapping into another trend the advice business has long had trouble tackling — the need to bring in the next generation of adviser.

So kudos to those advisers who are taking the proverbial bull by the horns, setting their succession plan and cementing the next generation of advisers. The rest of the industry should take note and do likewise.

  @IN Wire

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