Rethinking succession planning by putting clients first

According to our research, more firms have written succession plans than in years past, and importantly, more firms are focused on how thoughtful succession and continuity planning can serve as an effective growth mechanism. All you have to do is “rethink” it.

No matter what your firm’s succession path may be, whether it is an internal transition or you plan to merge or sell, firm leaders should ask themselves: will this transition provide the firm the resources it needs to better serve clients now and for generations to come? To “rethink” succession, it’s about the advisory client and the future of the firm, not any one person.

The good news? We are beginning to see the tides change in this direction — more and more firms are applying this mentality to their succession strategies. For many small firms whose founders are transitioning out of the business, putting clients first may mean merging with growth-oriented firms to ensure clients continue to have access to top-notch resources and talent. And vice-versa: for the larger firms integrating these smaller practices into their businesses, “client first” comes down to adding the right resources and talent to provide exceptional service to clients now and in the future.

Whether you are the small firm or the growth-oriented firm, a “client first” approach to succession can be hard to navigate. For firm leaders, their businesses are their greatest asset, and there is an emotional layer to planning for their future. Amidst this emotional, personal process, how does one stay focused on the end investor?

Think Beyond One Person

As firm leaders begin to think about setting their firms up for a successful transition, although difficult to do at times, they should think beyond themselves or any one person. If one leader is to leave, what impact would that have on client service? Is the firm structured to survive for years to come despite the loss of that one person?

Regardless of your succession path, taking steps to spread the leadership throughout the firm may help you prepare for an expected — or unexpected — transition. The Colony Group (“Colony”), based in Boston and with offices along the East Coast, serves as an example, with partners making up 40% of its staff and a dedicated management team focused on running the business and making sure clients do not feel any impact if a leader leaves the firm.

According to CEO and president Michael Nathanson, the practice of not spreading the leadership is “endemic in the industry. You see so many founders still in control of their firms, and the clock is ticking. You have to continually ask: what is best for the clients?”

Prosper Advisors, which joined Colony in 2013, also made leadership a priority when thinking through the future of their firm. They had a strong advisory team, but they were seeking more leadership bench strength — something Colony had. According to Prosper, its merger with Colony gave them the deeper management team they needed to ensure seamless continuity and greater business optimization with no impact on client service.

Think Beyond Leadership

When firm leaders are considering a succession plan, keeping leadership in mind is important, but so is talent. Which path will give employees more opportunities to grow? Which option will give the firm access to more talent and resources? Finding and retaining the right talent to service your current and future clients is a key step in “client first” succession planning.

According to Colony, their strategy to merge with smaller firms like Prosper has helped them do both: effectively bring on strong talent and provide talent — particularly young advisers — with development opportunities so that the firm is well positioned to provide great client service for years to come.

When Colony merged with Boston-based Mintz Levin Financial Advisors (MLFA) in 2012, MLFA was looking for a succession solution that would give their younger advisers development opportunities to become owners. Colony’s Mr. Nathanson suggests firm leaders keep in mind “there may be firms out there that are missing a piece in completing their succession puzzle, and your firm could be that final piece.” Seven MLFA advisers and one Prosper adviser are now part-owners of Colony.

Think Beyond Financials

Finding the right succession solution that benefits all stakeholders does not happen overnight, and not every deal or opportunity is going to be right for you. To help weed out those that are not a fit, firm leaders should think beyond the economics of the deal and apply criteria that hit on firm values, culture and philosophy, including putting the client first.

For Colony, this means only considering deals with the right service model. The firm takes a disciplined approach to their acquisitions, only working with other firms that share their service and cultural values, something Mr. Nathanson calls “growth with purpose.”

This was the case with Long Wharf Investors, which recently merged with Colony. According to Long Wharf’s Rod Macdonald, “we immediately recognized that Colony had a similar client service philosophy, and there was a natural fit between the two firms. With Colony, we could achieve our objective of a succession solution without compromising our core values and client-first philosophy.”

It is said that “culture eats strategy for breakfast,” so when making a smart decision about which succession path is right for your firm, culture and philosophy need a seat at the table.

The fact that firms are more focused on “client first” continuity and succession is evidence that the industry is evolving, becoming more thoughtful about the mergers, acquisitions and transitions taking place. Keeping leadership, talent, resources and values in mind may help you “rethink” your succession path to keep clients first.

David Canter is an executive vice president, practice management and consulting, at Fidelity Institutional Wealth Services. Fidelity Institutional Wealth Services is a division of Fidelity Brokerage Services LLC. Member NYSE, SIPC. The content provided herein is general in nature and is for informational purposes only. Copyright 2014 FMR LLC. All rights reserved. 694924.1.0

Related Topics: Succession plan