Commonwealth Independent Advisor

How to Build Your Succession Plan, Part 1

Posted by Maria Considine King

May 20, 2014 at 10:00 AM

Succession Planning for AdvisorsAs an advisor, you may find the prospect of building a succession plan and transitioning your business to someone else difficult—maybe even a bit daunting.

Consider how you guide and manage clients' retirement plans according to their specific circumstances and dreams. Many clients probably find the thought of saving enough for retirement an insurmountable task. You help them see the big picture and move toward their goals, step by step.

Succession planning for advisors is similar. While it can be challenging, try not to let natural apprehensions stall this vital planning. Center your decision making on your personal goals and the unique opportunities available to you. Then, work consistently to achieve a successful transition.

Determine Your Goals for Succession

Be sure to prepare yourself personally for this life transition and take time to determine a few goals for yourself and your succession plan. To get started, ask yourself the following questions:

  • How long do I intend to be in this business?
  • What will I do when I am no longer working as an advisor?
  • Do I want to retire? Work less? Change careers?
  • What type of lifestyle do I want once I am no longer working as an advisor?
  • What do I want my legacy to be?

Carefully articulate your goals and vision. With these ambitions in mind, you'll be more likely to make the smart business decisions needed to make them a reality.

Choose the Succession Form for Your Business

Once you know your specific goals, it's time to choose the succession form that's best for you and your business. The three common forms include:

  • An internal succession is the transfer of your practice to someone else within your firm. If you choose this form of succession, you may consider selling the practice to a business partner or, alternatively, hiring and developing a junior partner or heir and transitioning the business to him or her over a period of time.
  • merger is the combining of your business with another. You may choose to subordinate your business to the other or create a new brand altogether.
  • An external sale is the sale or transfer of your practice to an outside successor. With this succession form, you may decide to stay on briefly to help facilitate the transition.

Determine the Timing for Your Transition

Now that you have a good idea of your big-picture goals and the succession form that's best for you, consider the general timeline for your transition. You may want to retire in, say, five years—or you may want to start a new business next year. On the other hand, you may want to scale back your workload so that, in ten years, you'll work half the number of hours.

Having a good understanding of the timing will help in discussing your succession with colleagues, partners, strategic alliances, and mentors. It is also useful for nailing down the specifics of your plan.

Begin Selecting Your Successor or Buyer

You may already have a good idea as to whom you'd like to take over your business. If not, begin your search by considering the characteristics that you find to be ideal. For example:

  • Experience and credentials
  • Production
  • Business model and niche
  • Client service standards
  • Values and personality
  • Geographical proximity
  • Capacity to service additional clients
  • Ability to retain staff
  • Investment philosophy

When you have a general idea of the type of advisor you'd like to be your successor, spread the word that you’re looking for a succession or merger partner. Word-of-mouth is one of the best methods for sourcing new candidates to interview.

Choosing your successor is a highly personal process. Be sure to remember, however, that you're not trying to find your carbon copy—he or she doesn't exist. The goal is to find an advisor who will provide indispensable value to your clients.

Just as with any large initiative or change, it's best to take things slowly. When you plan for succession carefully—step by step—you're more likely to have a smooth, successful transition. Stay tuned for Part 2 for more information on how to complete your succession plan.

What are your thoughts? Do you have any tips for fellow advisors beginning their succession planning?

A Guide to Valuing Your Financial Advisory Practice  

Topics: Practice Management, Succession

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