Bridging the adviser generation gap to make succession planning work

Emotions can throw a wrench into even the best-laid succession plans — especially when advisers and successors bring conflicting expectations to the table. Now, more than ever, research suggests that emotional wire-crossing could be a growing problem during succession negotiations. That’s because Gen Y advisers have very different ideas about buying and selling than the baby boomer and Gen X advisers they hope to replace.

Can advisers and their successors keep conflicting emotions from hurting their future deals? The answer is yes — if they avoid making assumptions and try to understand each other better.

To Understand Millennial Advisers, Look at Millennial Homebuyers

For an adviser looking to understand this new attitude toward ownership, the most illuminating example is the housing market. Buying a home is a life-altering investment—much like buying an advisory firm. And it is a classic example of boomers and Millennials coming into direct negotiations over a major purchase, and finding that their conflicting emotions get in the way.

What we have here is a failure to communicate. The sellers think the buyers are making a statement about the home itself. Instead, the buyers simply place a lower value on home ownership, period — regardless of the particular property. Millennials identify home ownership as their “dream” far less often than Gen X and baby boomers, according to MassMutual’s 2013 the State of the American Family report. Sellers think young buyers are making lowball offers so they can acquire a premium property at a huge discount. The truth is, owning a house might simply be worth less to a Millennial than it is to a boomer.

(Related Read: Rethinking succession planning by putting clients first)

Applying Lessons from the Home Front

The generation gap that divides boomers and Gen Y advisers is far from insurmountable, as long as both sides recognize where the other is coming from on an emotional level. Real estate professionals offer a standard set of guidelines for helping house sellers manage the impact of emotions on their transactions. The same advice may also help advisers negotiate more successful business transitions.

1. Detach your own emotions from the transaction.
You care about your team and your clients, and you are proud of everything you have accomplished together. Make a conscious effort to put those feelings aside and treat your succession plans as a purely business decision. View your firm as an asset like any other.

2. Price properly.
Your firm may have unique characteristics that make it unusually valuable in your eyes. However, your buyers may not value the same things you do. Follow a disciplined, systematic valuation process and strive to be objective.

3. Never take offers personally.
If you are displeased with an offer, counter in a businesslike way. You may either be able to negotiate a better deal, or at least learn something about the way others perceive your firm.

4. See your firm through your potential successor’s eyes.
Real estate agents often counsel home sellers to remove pictures and personal collections so that buyers can picture their own furniture in the house. In the same way, understand that your potential successor may have a different vision for the future, or a different perception of your firm’s strengths and challenges.

5. Listen to the experts.
Emotional home sellers often overrule their agents’ advice. In managing your own transaction, seek out objective professionals who can advise you on matters like legal structures or valuation — and listen to them.

(Also: Fiduciary duty’s role in succession planning)

Remember, leaving your business is not good bye. Ask yourself: Are we leaving the financial industry better off than we found it — or worse than we found it? Succession planning can be an emotional task for an adviser. It involves imagining the day when you make major changes in your own life while transitioning your clients, employees and business to a new generation. However, it is important to remember that potential successors also bring their own emotional baggage into the transaction. At first glance, their attitudes toward your business may seem difficult to understand, or even off-putting. Understanding a successor’s emotional drivers is important to navigating a transaction successfully—and will only become more critical in the years ahead, as Millennials put their own unique spin on the art of buying and selling.
Gabriel Garcia is director for Pershing Adviser Solutions LLC, a BNY Mellon company.