Seamless Succession Planning for Financial Advisors
According to Cerulli Associates, 37% of advisors plan to retire within the next 10 years.
If that’s you, you’ll need a succession plan to ensure your advisory business continues to thrive after your departure.
After all, you built your practice from the ground up—it’s the fruits of your hard work. It's not just about ensuring business continuity and handover of your book of business; you need to preserve the legacy, trust, and relationships you’ve built over the years.
And what about your clients? You’ve cultivated those relationships for months—potentially years. An abrupt handover wouldn’t be fair to your existing clients.
A succession plan is necessary for a smooth transition—for your clients and business. In this article, we’ll discuss what succession planning is and how you can create one for your advisory firm.
The Essentials of Succession Planning for Financial Advisors
Succession is the process of ensuring that when an advisor decides it's time to hang up their boots, the clients they've served, the assets they've managed, and the responsibilities they've shouldered don't fall into a void. Instead, these seamlessly transfer, ensuring the trust and rapport built over the years remain unbroken.
There are primarily two types of succession plans: internal and external.
An internal succession plan occurs when you’ve selected your successor within the firm. Imagine a scenario where a promising associate who has been with your firm for years steps up. You’ve mentored your candidate. They understand the firm's values and the culture you nurture within the company. They’re well-acquainted with the clientele and the specific financial services you provide them. This associate becomes the torchbearer, ensuring that the firm's legacy continues from within.
On the other hand, an external succession plan occurs when an outside source receives the baton. This plan could mean selling your practice to a high-potential external candidate or merging with another advisory. If your firm has a niche specialization, a larger entity looking to diversify its portfolio may acquire your practice.
How To Plan for Financial Advisor Succession
Like a financial plan, a succession plan isn’t a one-size-fits-all strategy. You’ll need to create your own—tailored to your advisory practice's unique needs and dynamics. Here’s our recommended succession planning process.
Assess Your Practice for Succession
Before delving into creating your succession plan, you need to know what you’re transferring in the first place. Beginning with an assessment of your practice ensures that you and your firm are well-prepared for the transition.
Self-evaluating your readiness: Make sure you’re mentally and financially prepared for the transition. On top of that, you also need to make sure that your firm is ready for the transition. Who are the critical players in your firm, and what are their roles? Recognizing these roles ensures that there's no leadership vacuum post-transition.
Evaluating client relationships and their transferability: Prevent your client’s trust from being damaged despite the change of hands. Analyze how deep-rooted these relationships are and how to transition them smoothly. For example, if a client has been with your firm due to a specific investment strategy you championed, how will the next generation uphold this strategy?
Completing a financial assessment: Understand the value of your firm and its financial health. Look into its assets, liabilities, and growth trajectory. Monitor your cash flow to ensure the firm will remain financially robust during and after the transition. This assessment includes an analysis like foreseeing financial commitments and potential investments.
Identify and Prepare Successors
Before you can pick the candidates, you’ll need to decide first: will you be passing the torch internally or externally?
There are different criteria to observe depending on your choice here.
Let’s start with an internal succession.
Internal succession starts from identifying potential within your firm and then molding it to take on the mantle. The process involves:
Mentoring and Training: This is not just about imparting technical knowledge but also instilling the firm’s values and ethos—your foundation—to your potential successors.
Creating a Clear Path for Advancement: This involves providing opportunities for growth and setting clear milestones, which can also measure the candidate’s readiness.
External succession, on the other hand, is about finding the right fit externally—an entity that aligns with the firm's vision and can take it to new heights. The key steps here include:
Finding Potential Buyers or Merge Partners: This could be a high-potential individual looking to helm a firm or another advisory that complements your firm's strengths. For instance, if your firm specializes in retirement planning, merging with a firm that excels in estate planning and wealth management for retirees could be a strategic move. That way, you can provide a comprehensive service for your clients and their family members.
Negotiation: This is a delicate dance, balancing the valuation of your firm and its potential and ensuring that the terms are favorable for all parties involved.
Create a Detailed Succession Plan
Now that you have a rough plan—what to transfer and who to give your assets to—it’s time to draft a more detailed one.
Documenting the Transition Process. You’ll need to create a comprehensive blueprint that captures every transition nuance. For instance, if you've identified an internal successor, the documentation should detail the mentorship programs, client introductions, and any additional training required.
Setting a Timeline and Milestones. Breaking down the transition into more manageable phases will provide more clarity and direction during the process. For example, the first milestone could be the successor taking over a certain percentage of client accounts, followed by a complete handover after a specified period.
Communicating Strategies to Staff and Clients. Your team members should align with the transition plan by understanding their roles and responsibilities. Clients, the lifeblood of your practice, need reassurance. They need to know that the transition won't disrupt the service they've come to expect.
Ensure that communication channels between your new successor, staff, and clients are open to make this transition more accessible for all parties. For instance, hosting a meet-and-greet session between clients and the successor can foster trust and smoothen the transition.
Legal and Compliance Requirements. The financial advisory landscape is riddled with regulations, and ensuring compliance is non-negotiable. This compliance could range from updating contractual agreements to ensuring the successor's certifications are in order. For example, suppose there's a change in the firm's ownership structure. In this situation, you’ll need to notify regulatory bodies and acquire certain approvals.
Navigate Client Transitions
Your client base is one of the most important parts of your business; current client retention is important in this process.
Ensure you’re not damaging the trust and relationship you’ve built over the years through this transition.
You can do this by maintaining an open line of communication, addressing their concerns, and matching their expectations during the transition process.
You’ll also need to make sure that the financial professionals staying with your successor can maintain your standard of services. On top of that, you can help your successor familiarize themself with your client’s financial goals and needs.
The most important thing is ensuring clients feel valued and understood during and after this transition. Celebrating milestones, acknowledging their loyalty, and reinforcing that while the leadership might change, the firm's commitment to their financial well-being remains unwavering can go a long way.
Monitor Succession Plan
Now that you have your plans, remember that this isn’t a one-time process.
Anything can change along the way—regulatory requirements, market conditions, your successor’s plans. A succession plan is a living document you’ll need to maintain until the transition is complete.
It’s ideal if you have contingencies in place to navigate these changes. But you also need to ensure that your plans are regularly updated so there won’t be any confusion during the execution.
You may have crafted the initial plan with certain assumptions about market growth, client acquisition rates, or the firm's expansion strategies. However, as these variables change, the plan needs to be revisited. For example, suppose the firm has recently expanded its services to cater to a younger demographic. In that case, the succession plan might need tweaks to ensure the successor addresses the new clientele's needs.
Lean on Asset-Map for Successful Financial Advisor Succession Planning
Succession isn’t a one-and-done deal.
It sounds easy—find someone interested in your book of business, close the deal, and help your clients and team transition to the new owners and stakeholders.
In reality, however, it’s much more complicated than that.
Many moving parts are involved, and it’s your final duty as the business owner to make sure that all of these parts safely move before you walk away.
Asset-Map can help you track these parts so nothing gets lost during the transition. Get a demo today and see how Asset-Map’s visual platform can help you manage your firm’s assets at scale.