Succession Planning

Succession planning through the eyes of a client

Some simple math suggests that just 17% of all clients were proactively approached by their adviser to discuss a succession plan

Sep 11, 2015 @ 12:36 pm

By Julie Littlechild

Imagine for a moment that you work with a professional who has a position of extraordinary trust. He has the power to impact your financial future and that of your family. You have built a relationship over many years and he has, in some way, been a part of the most significant events in your life. Despite the depth of the relationship, you don't know how long he plans on working, what will happen to you if and when he retires or, more disturbing, if he is suddenly disabled or, for some other reason, unable to work.

For clients, this scenario is, at best, uncomfortable and, at worst, risky. Yet it reflects the reality for the majority of clients who work with a financial adviser. According to the Financial Planning Association's Trends in Practice Management study, three-quarters of advisers say they have no formal succession plan, dropping slightly to 60% for advisers over the age of 65. As for clients, the investor research conducted by If Not Now Research shows that just a third say they believe their adviser has a succession plan in place.

(More: Game Changers/Succession Planning: When Time Runs Out)

Among the group of clients who believe their adviser has a succession plan, about half say their adviser raised the issue with them proactively. Some simple math suggests that just 17% of all clients were proactively approached by their adviser to discuss a succession plan. It is not surprising, then, that two-thirds of clients don't know when their adviser plans to retire. Nor is it surprising, however, that upon reflection, a high percentage of clients (51%) think it might be important for their adviser to have a clear plan in place.

The lack of succession planning leads to obvious comparisons to the shoemaker's children syndrome, but even that requires some explanation. The most common reason cited by many advisers is that they won't fully retire, perhaps reducing their workload to a few key clients. This strategy might work unless we think about four key stakeholders in the process.

Your clients. Your clients agreed to work with you as a going concern. They deserve the protection of knowing that they are taken care of should something happen to you and to work with a team that is energetic and engaged on a full time basis. Would you continue to work with a doctor who told you he or she was never going to retire?

Your team. The backbone of your business is your team. By hiring them you have created a social contract, perhaps unspoken, that you will always act in their best interests. It is the right of the team to know that they are part of a business continuity plan that is not left to chance.

Your family. There are too many horror stories of advisers passing away without any form of buy-sell agreement in place and the devastating financial impact on their families. The agreement is important, but in order to maximize the long-term value of the business, it needs to form the basis of a plan that deals with issues beyond legalities, particularly transition.

(More: Advisers' deaths without transition plans force custodians into action)

You and your legacy. One of the unsung benefits of a succession plan is that it allows you to take control in defining the legacy you want to leave. The goals you set for your own retirement are tightly linked to the future of the business and should dictate how you structure your business today. A succession plan is a business management tool that helps you make the right decisions today.

There has been much written about how to structure a meaningful succession plan. However, before you think about the how perhaps you should think about the why or, more specifically, the why not. You may not have formalized a plan due to lack of clarity or fears about your own retirement. A clear and powerful vision for your own retirement and for the future of your clients, team and family should provide the foundation you need to spark action. As an industry, it's time we ate our own cooking.

Julie Littlechild is the founder of If Not Now Research.


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