The keys to successful succession planning

Client retention and creating a service-based strategy for a seamless transition are paramount

Mar 20, 2016 @ 12:01 am

By Liz Skinner

Adviser Neil Hokanson spent several years considering different succession strategies for his $570 million advisory firm, which he had nurtured for 25 years. He wanted a deal that was reasonable for Hokanson Associates' five shareholders and offered his 12 employees career opportunities. But his 270 clients were really at the top of his mind.

“Clients had to be served at least as well as they were already being served, and hopefully better,” he said.

The transaction he brokered in November to merge his firm into Aspiriant fit the bill.

Clients would come to the same San Diego offices, see the same staff, incur the same fees and be invested using the same strategies. Mr. Hokanson, 62, would stick around at least in the short term. Additionally, clients would get broader investment depth from Aspiriant.

Making clients comfortable with a change in ownership the way Mr. Hokanson and Aspiriant did is critical for a successful succession. Without a reason to stay, clients may be motivated to finally place that call to the neighbor's son who is a broker or make other arrangements to leave.

Both buyers and sellers lose when client retention lags. In addition to advisers wanting to leave their clients in caring hands, most transactions call for recalculating the payout that sellers receive for several years after a transition. Fewer clients mean lower payments for sellers.


In the end, retention will be highest when change is minimal for clients and there are few actions required of them to complete the transition, experts said.

“The best practice for anyone going through a transition is to do what's best for clients,” said Rich Whitworth, managing director for business consulting at Cetera Financial Group.

Look Into your client's eyes and say you hand-selected this person.— Julie  Littlechild,  founder of Absolute Engagement

One of the most important things for clients, who find switching advisers unnerving, is continuity. They want the investment approach to be analogous and communication from the adviser to be similar to, or better than, it was with the former adviser.

“They want to know that someone has told the new adviser about them and what they have experienced over the years,” said Julie Littlechild, founder of Absolute Engagement.

No one likes to have to answer questions again that they've already answered, said Chris Winn, chief executive of AdvisorAssist. Therefore, advisory firm sellers should make sure that documentation about clients is thorough.


It also can help if certain support people, such as client-service representatives and other client-facing administrative personnel, move to the new adviser. It helps if the seller is still around in some capacity, too.

“We recommend succession plans include a limited role for the founder, so they stay affiliated with the business for a time and can be tapped for their institutional knowledge,” Mr. Winn said.

Essentially, when new advisers take over, they need to resell the clients on their services — and that's a task that shouldn't be taken lightly.

Eliot Dylan Marr, an adviser at Independent Financial Partners in Tampa, Fla., recently bought a colleague's $12 million book of business, which included about 100 clients. He recommends buyers be prepared to work hard during the transition.

“It is literally the busiest you'll ever be the day you take on these new clients,” Mr. Marr said. “There need to be a lot of touches, or clients are going to go somewhere else.”

He and the seller met in person with every client, either getting together for dinner or having meetings in their homes.

“It allowed me to establish a relationship from minute one,” Mr. Marr said. “I wanted to show them that they are not just a transaction to me.”

Shortly after those meetings, Mr. Marr's assistant called each client to set up another meeting and sign them up for his newsletter. He also mailed each client a copy of his book on investing.

Mr. Marr said 100% of the top quarter of clients remained with him, and overall less than 5% of clients left. Of those who did move their accounts, most claimed that they had already been thinking of leaving, he said. The sale was just the spark.

Client retention is often higher when an adviser passes clients off to another professional within a firm. At IFP, a loss of 5% or less is typical, compared with up to 15% when a practice is sold from IFP to an outside firm or the other way around, according to Trent Gain, IFP's director of adviser relations.

An advisory firm's ability to hold on to clients during an ownership change also will depend on how culturally compatible the new owner and existing clients are.

Mr. Winn saw one deal that was a mismatch from the start. An older woman adviser who had catered to widows and divorcees transferred her practice to a 30-year-old male adviser, “and some clients just never clicked.”


Clients are looking for more than just a perfect investment portfolio or plan, Mr. Winn said.

They want someone with whom they feel they can comfortably discuss their goals and needs, he said.

It's a good idea for an adviser looking for a successor to question his or her clients to find out what services and characteristics they value most. Then the adviser can look for a successor who can provide those features, Mr. Winn said. Finally, sellers and buyers should not underestimate the importance of having a carefully planned strategy for telling clients about the move.

All top clients should be told face to face, Ms. Littlechild said.

“Look into your client's eyes and say you hand-selected this person,” she recommended.

If advisers decide they can't notify some smaller clients personally and choose to send a letter with the details, even that should be strategically penned, she said.

The letter should be shown to a couple of clients to “beta-test the words” before it's sent to all clients. Another approach to informing these clients is to hold an open house to break the news, Ms. Littlechild said.


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