The ‘why’, ‘why not’, and ‘how’ of financial adviser succession planning

As I watched episode 3, I found myself pacing, and mixing in the occasional fist pump. I can’t contain my enthusiasm when it comes to this topic, or this series. In this episode, we are treated to the consultants giving their analysis. Greg Opitz, longtime advisor coach at Peak Advisor Alliance, and John Furey, principal at Advisor Growth Strategies both sat down with our host, Matt Ackermann. Together, they broke down the situation at hand and discussed the topic of succession planning more broadly.
Watching their discussion, I yearned to be in the trenches with them and the Lapitos – this is why I love helping advisers and why, despite CLS’s many successes, I will never hang up my cleats. So I hope they don’t mind if I do a little arm-chair quarterbacking on this one. CLS feels so strongly about this issue that we sponsored this entire season – and so while I think Greg and John did well in their assessment, I am compelled to weigh in. As I see it, we need to clearly address the three main questions surrounding the issue of succession planning – why MUST advisors do this? What stops them? And, how does one begin the process?
Why bother creating a plan at all?
In my opinion, advisers don’t have to create a succession plan that equates to selling their business and riding their horse off into the sunset. However, I do strongly believe that independent advisers must create a succession plan because they are a FIDUCIARY. Financial planners have the fiduciary responsibility to take care of clients, which includes putting the client’s interests above their own; and it’s important to think of that responsibility not only during a working career or a client’s lifetime, but also for the duration of the adviser’s own lifetime. As a fiduciary, the adviser should not only think about or create a succession plan, but also communicate it effectively to clients.
Most clients won’t ask, but they all wonder what happens to their money when their planner retires or dies. We need to communicate these plans to clients so they can rest assured that no matter what happens to their trusted adviser (retirement, disability, selling of business, or death), their portfolio and plan is in place, and they will know what to do to transition. As Greg and Matt stated, communication of the succession plan can actually fuel growth into an adviser’s practice. It gives clients confidence that the firm will be around for their lifetime. Clients will be more apt to share other assets, and their children’s assets, with a firm that is going to be around for a long period of time than with a 65-year-old financial planner they really like, but who has not clearly outlined or communicated a succession plan.
What holds advisors back? Why do they put succession planning off?
I think there are three significant reasons:
1. Valuations. The fact is that financial planning practices are not fetching the type of dollars that we once thought they should. The businesses aren’t worth as much as we had hoped. Therefore, there is a long line of buyers willing to purchase financial planning businesses because the valuations are relatively low. Yet, it is difficult for the seller to justify selling when the valuations are low.
2. Not Retirement Ready/Cobbler Syndrome. Financial advisors are like the shoe cobbler who made shoes for everyone in the village but his own children went to school without shoes. Financial advisors help hundreds, if not thousands, of people prepare for retirement and use their assets wisely in retirement. It is a noble calling. However, many financial advisers haven’t taken care of themselves and prepared for retirement. As a result, many advisers aren’t in a position to retire.
3. Desire. The industry, via aggregators and roll-ups, has largely defined succession planning in terms of selling. However, many advisers simply don’t want to sell. They want to stay engaged and as long as they have their mind and body – they can continue to help people make financial decisions. All too often, financial planners see clients who work their whole life only to die a year or two into retirement. Financial advisers may then fear the potential result of inactivity and want to stay involved, engaged, and relevant.
So – because of poor valuations, a lack of retirement readiness, and the desire to continue to operate and run their business – advisers may have avoided creating a succession plan (as defined by the industry).
So how should an adviser get started?
When putting a succession plan together, you must start with the end in mind. Considering what you want for yourself, your family, your clients, and your team is critical. Picturing what the end looks like will help you know what steps need to be taken now.
• Do you want to stay engaged?
• Do you only want to work with a certain group or type of client?
• Do you want to sell 100% and retire?
• Do you want to do an internal transfer of business to a family member, junior adviser, or partner?
• Do you want to do an external transfer?
Answers to these types of questions and how they impact you, your family, your clients, and your team will help to determine the next appropriate steps to take. Taking even one small step is a step in the right direction.
It is important to realize that the answers to these questions today will probably change. And that is okay. It is certainly not a reason to put this off. Five to ten years may bring different answers to the same questions, but there are answers nonetheless. Hence, succession planning is never really done. It evolves as your practice and outlook evolves.
Sometimes taking that first step seems impossible and you need to be pulled in the right direction. If a nudge is needed, I’m happy to provide it, and would love to hear your thoughts on this topic regardless.
Todd Clarke is the chief executive officer of CLS Investments and can be reached at [email protected]
1465-CLS-4/10/2015