3 obstacles to succession planning — and how to overcome them

Though financial advisers may excel at helping clients plan for the long term, too few are following their own advice.

Only 37% of advisers have an adequate succession plan, according to a new FA Insight report on succession planning, a statistic that is little changed since 2011. What’s holding advisers back, they say, are concerns that clients won’t be cared for, that retirement is a long way off or that the planning process takes too long.

Preparing for the eventual exit from one’s life’s work is not easy, yet advisers have much to gain by rolling up their sleeves and getting started. A sound succession plan is more than transition of ownership: it’s a smart approach to managing human capital and fostering business continuity for the long haul.

We recently looked at three of the most common roadblocks to making succession plans, and developed a few strategies to help advisers overcome them.

Nobody does it better

The pride that comes from founding and growing a successful business is a major obstacle to progress on succession plans. In fact, according to the report, relinquishing client control is the No. 1 reason advisers do not complete a formal succession plan. This inability to move forward on planning for their firm’s future can be an emotional hurdle that holds advisers back for years.

One Texas-based adviser recalls that the turning point came for him after struggling to convince a business-owner client to turn over the reins. “When I got home that night, I looked at myself in the mirror and realized I had the same problem,” he said.

The fear of letting go can mean that the adviser has not made plans for life separate from the firm. A helpful strategy to get past this is for advisers to think through the roles they want to play outside of the firm. This shifts succession planning from a hypervigilance over what could go wrong to a focus on transitioning to a “second act.”

I’m too young — there’s plenty of time

For many, retirement feels years away. But advisers may be shocked to know just how much time is often needed to get succession planning right — at least four years, according to the FA Insight report.

Many firm owners underestimate the amount of time required and find themselves playing catch up. As one California adviser put it, “I didn’t feel any urgency for succession planning because retirement was decades away. Now I realize time has slipped away.”

Every adviser has a business continuity issue from day one. Since the client relationship is with the firm, “gentlemen’s agreements” do not work. Advisers cannot have just anyone take over if something happens to them.

Advisers intent on putting succession plans on the back burner may also be surprised to learn that the transition frequently does not unfold according to plan. In fact, 54% of advisers surveyed as part of the succession planning report pursued multiple options before finding a workable solution.

Those who want to transition to an internal successor or team need time to find and groom these individuals. A longer horizon — say, 10 years — can give owners time to mentor several candidates if initial prospects do not work out. Owners who want to merge or sell need to recognize that the counterparty may have last-minute regrets, financing the successor’s buy-in may be a hurdle or deal negotiations may fall through.

There’s not enough time

There are also advisers who cannot find the time required to get their transition right. For advisers daunted by the succession planning work ahead of them, the key is to just get started.

“A piece of a plan is better than no plan,” a New York-area adviser said. “And don’t be afraid to make changes. You don’t have get it all done in one shot.”

That said, there is no shortcut to a successful succession plan. To be thoughtful and strategic about relinquishing control of the firm they built, advisers must dedicate time to the succession planning process. This starts by developing a realistic planning time frame to account for the possibility that multiple transition attempts may be needed.

After years of building a business and running things their way, succession planning can be unsettling, uncomfortable and emotional for advisers. But the sooner they get started, the more potential solutions they will have available to them. Advisers should take comfort in the realization that a good succession plan can lead to the best possible outcomes — for themselves and their clients.

(More: Adviser’s Consultant: Building a flexible succession plan)

Vanessa Oligino is TD Ameritrade Institutional’s director of business performance solutions

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