Succession Planning — or the lack of it — is an issue that the financial advisory industry needs to address. This nation's aging population requires not only that financial advisers find creative ways to connect with their clients' heirs but also that advisers themselves be prepared to pass their businesses to the next generation.
No one said it's easy to face the fact that one day we will all need to step aside, but advisers who continue to put off developing and implementing a succession plan are being shortsighted.
Just like investors who don't adequately plan, or delay planning, for retirement and therefore face a bigger risk of falling short, advisers who fail to prepare for their succession risk jeopardizing the future of their practice.
Financial advisers are in the business of planning and helping their clients anticipate all major life events, including retirement.
Let's be honest: An adviser would be the first to point out to a client that having a solid plan is a prerequisite for reaching financial goals. How is that any different from your own succession plan?
"HEAL THYSELF'
It appears that most financial advisers are not living up to the standards they set for their clients. The motto “Physician, heal thyself” says it all when it comes to succession planning for financial advisory firms.
In the 2012 Succession Planning Study, recently released by
IN Adviser Solutions, 92% of the advisory owners surveyed believe that not having a succession plan in place creates a business risk. Yet half of those firms have no plan established.
What's more, firm owners claiming to have a succession plan that was “ready to implement” actually have done little other than identify a succession candidate.
The succession planning study also found that owners of financial advisory firms who do not have any succession plan are more than four times as likely to just “walk away” from the business if they cannot find a buyer.
Many advisory firm owners who lack a succession plan do not know the actual value of their own practice, nor have they performed the due diligence needed to find an appropriate buyer.
Many advisers are reaching retirement age. They have spent many years building their books of business and have formed a personal attachment to their clients. There's no doubt that transitioning their practice to the next generation will be difficult for them, but it's a reality they must deal with.
FACING THE UNCOMFORTABLE
All advisers have stubborn clients who put off preparing wills or discussing
estate planning, and who will never mention their own demise. This apparently makes them uncomfortable.
The same should not be said for financial advisers, who should know better.
Business logic demands that advisory firms, of all sizes and levels of sophistication, must take the time and effort to fashion a succession plan.
Advisers must think about succession planning as a critical part of business continuity, protecting the asset that they have built and the many clients they serve.
As a trusted adviser, your responsibility to your clients is paramount — not to mention your obligation to your staff. A succession plan will ensure that the practice you worked so hard to create will endure after you.
