As Benjamin Franklin once said, “By failing to prepare, you are preparing to fail.” Looking ahead to develop a succession plan, and then execute it, lets you see your financial advisory firm’s business challenges and create a succession strategy to address them. But give yourself plenty of time. Proper assessment can take up to five years to achieve. Here are some important steps for your leadership skills assessment plan:
ACKNOWLEDGE THAT YOUR BUSINESS MODEL REQUIRES SUCCESSION PLANNING
The financial advisory business has succession challenges you should weave into retirement planning. Why? Because your business success relies on your clients’ success. These relationships rely on the expertise your clients appreciate and trust. A change in that connection with your business creates a “tipping point.” Will they stay with a new owner, or find another advisor? The financial value of your business depends on the answers to that question.
EVALUATE YOUR CURRENT BUSINESS SITUATION
Many financial advisors think the easiest retirement option lies in the people currently working in their firm. Have you hired and mentored a successor already? Do you have partners that will merge your business with their own? Do you have a next-generation family member active in your firm? Whatever your answer to these questions are, your situation provides the starting point for succession planning. And each of these options leads to a different strategic and tactical direction.
ISOLATE YOUR SUCCESSION OBJECTIVES AND DEVELOP A PLAN
When you finally retire, what is the ideal position you envision? Maybe you’d like to see your financial advisory firm remain viable without you, but with the same client commitment and standards you’ve established over the years. Or perhaps, your primary objectives are to move on and enjoy a second career, an important goal or spend time with your family and travel. Knowing that you want to exit your business soon impacts your choices. Be prepared for ongoing involvement to oversee the firm’s progress and your ongoing financial investment.
IDENTIFY AN INTERNAL SUCCESSOR AND DEVELOP MILESTONES
If you have the option of a family member to take over your business, that provides a clear strategic road map for succession. You might also identify a potential successor who either works with your clients now or appears well-qualified for training. Finally, you may have a buy-out agreement with partners that provides retirement income. If the agreement still makes sense for your business, this option usually works well. Any of these options needs proper planning for implementation. Isolate both short- and long-term milestones for the succession option you select.
IDENTIFY NEXT STEPS, IF YOU PLAN AN OUTSIDE SALE
There are many qualified buyers interested in purchasing your financial firm. If you operate your business alone or prefer to sell (rather than “fund your sale to insiders”), you may want to look for the right buyer. This choice requires a “break-in” period, so the new owner can work with you until your clients and employees are comfortable with the transition. When preparing for a sale, take some time to evaluate your firm and its operations. See our article on Selling A Financial Advisory Practice – What Do Buyers Want for more detail on this.
CREATE STRATEGY MILESTONES AND ADJUST YOUR PLAN
You know where you currently are and where you want to go, and you have a road map to get there – but sometimes there’s a detour along the way or a big pothole in the road. Hopefully, you don’t run into anything too major or destructive. But if you do, you have time to correct and re-define your map to retirement. After all, by even thinking about a succession plan you’re already ahead of many financial advisors who haven’t spent any time planning for succession, even though they’re approaching traditional retirement age.
BE TRANSPARENT WITH CLIENTS
Have you discussed your succession plans with clients? In most cases, an abrupt departure can damage the financial outlook for your firm and the happiness of your clients. Unexpected change could mean client departures and erode the business revenue stream. The best option is direct, organized and transparent business-like communications. Plan your content strategy and involve clients in the transition. They will appreciate your interest in keeping them informed and happy.
DEPART WITH CONFIDENCE
At some point, you’ll have to walk out the door. The very best thing that can happen is your firm will continue to grow and perform without you. Having spent the time to prepare for this day, you’ll leave behind a legacy you and your family can be proud of. You’ve put a new leader in place to take great care of your clients and employees. You’ve recognized the value of the firm you built and have the capital to enjoy your future!