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“Go Long” on Oxygen Tanks: A Breakdown on Succession Planning by ClientWise

By ClientWise | July 10, 2014


All of our financial advisor clients take a planning approach with their clients, so it seemed logical to me that they would do the same for their own business.  But what I’ve learned is that most financial advisors plan on working to their last breath. What they fail to understand is the thinking that needs to occur before that last breath. I’m very concerned about the future of our profession in terms of the amount of thought that’s going into succession planning. As advisors, we owe it our clients to deliver on the promises we’ve made to them. We must not think about succession selfishly, but through the lens of putting our clients first. 


According to Fidelity research, 75% of advisors have no succession plan for their businesses. Many advisors ignore the importance of succession planning because, at the peak of their careers (which for the best and brightest can last decades), they feel invincible. This is an understandable and powerful feeling. In fact, 43% of advisors plan to work "forever" and therefore don't consider succession planning a “top of the list” necessity.


Further studies reveal that even advisors who are planning aren’t being strategic or proactive enough. Two-thirds hope to do an internal transition of their business, but only 29% of that group has identified a successor to whom they will transition their books. Partial planning is about as effective as no planning at all; so while the thought is good, the real power is in the execution. Financial advisory practices that have an effective plan in place earn more than double the profit as those that don’t…and even they aren’t fully considering the process of succession as we see it at ClientWise.


We’re working hard to redefine advisors’ understanding of what succession planning entails, by emphasizing the following points about why and when it takes place:


  • Too many advisors mistakenly understand succession planning as something that's connected solely to the sale of the business, and therefore don't begin thinking about it until late in their careers. In reality, succession planning needs to be considered very early on, while the business is being built.

  • Succession planning starts long before conversations around deal structures and your practice's value come into play, because it is so intricately connected to your thinking around the moral fabric of your business and your brand.

  • Essentially, the very mission that drove you to build your business in the first place is what should drive its continued success long after your gone. It is this mission that your clients bought into when they signed with you, and it is this mission they imparted when they referred their friends and family to you. It is crucial that it be carried throughout.


In addition, advisors need to fully understand the changing landscape of financial services, and how this impacts the investor marketplace:


  • The baby boomer generation's capacity for growth is subsiding as they enter retirement, so businesses modeled around their needs will need to change their approach for future success.

  • The needs and expectations of the Millennial generation is very different from that of the Baby Boomer generation. They have access to more information about investing and are more proactive about doing research on their own. Often, they’ll use advisors to validate decisions they come to independently, rather than being hands off about their investments like their Baby Boomer counterparts.

  • Millennial investors also start putting money away earlier, at 24 versus the average age of 35 for Baby Boomers.


All of these factors come into play when considering that many advisors rush the succession planning process, simply because they don’t take into the account the time that it takes to build a strong team. The developing and rewarding of young talent should be top of mind for an advisor building a team.


  • We recommend that team leaders bring on advisors whom they can work with in an advisory capacity, but also with an eye toward their ability help co-create a vision for the future of their business. Being brought on early in this process will allow them to contribute to, and essentially be trained in, this vision.

  • When selecting team members, it’s important to remember that the younger investors mentioned above are more inclined to work with the younger generation of advisors in their same age group.

  • Many advisors already have a team in place and are considering the best way to blend their own team with that of a transitioning partner. Our team building exercises and tools really come in handy for financial advisors who are trying to simultaneously maximize their current team and blend that team with other highly capable groups in planning for succession. 

  • If the advisor is truly successful, he will build a team that participates as owners in his business, not just operators. 


Your succession plan should take into account all these factors, and be clearly written out and revisited frequently with input from your successor(s). When feeling resistance to this process, it’s important to remember that succession planning involves activities that can improve your business right now, and immediately impact your bottom line. Consider the questions below to get started.


Coaching Questions from this blog:

  1. Do you trust your team members to run the practice in the vision in your business was built should something happen to you unexpectedly?

  2. What measures do you have in place to effectively train your existing team members, or those you bring on, to understand that vision?

  3. How does this process provide potential to simultaneously improve existing structures occurring right now?

  4. Have you considered whom you’d partner with now, to co-create a vision for your joint future business, so that you aren’t left in the lurch once it comes time to really implement this plan for succession?

 Succession Planning for Financial Advisors

Topics: Business and Operations Management Change Succession Planning

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