Advisors work tirelessly to help their clients plan for the future but ironically, fail to plan their own future. Most advisors have not dealt with the critically important question: what will happen to their business when they retire or die.
A white paper published by United Planners Financial Services offers tips to help advisors develop a sound succession plan.
Choosing a transition strategy
Envision your preferred exit strategy so you can define a succession plan that gets you to that goal. Even if you never want to retire, you must consider the possibility that age and ailments could someday make it difficult to continue advising clients.
To identify your goals for long-term succession planning, the white paper recommends asking yourself several questions about the future, like, ‘What happens to your family’s income if you experience a disability or suddenly die?’ or ’ Have you made promises to your family about retiring or reducing your workload?’
The answers to those questions will help you identify transition options. For example, you might choose a partial succession that lets you continue working with clients while handing off most management duties to a successor or, you may simply choose to execute a continuity plan that provides an income to your family during what will likely be the most overwhelming time of their lives.
Finding the right successor
Choosing a successor is often the most difficult part of the process because advisors want to place their clients with someone who holds the same values, standards and planning approach.
There are several ways to identify a good candidate for your long-term succession plan. Looking for a potential successor in-house is a good first step. A partner, junior advisor or family member with experience in the industry may be suitable.
If you do not already have a successor in-house, ask yourself if you are willing to find a younger advisor to train. Not only can you teach an advisor your planning approach, you can give your clients time to get comfortable with your successor. Search for potential successors, who meet those criteria, within your professional networks. Select a short-list of candidates and determine whether they line up with your personality, values and client-care approach.
Valuing your practice
It is essential to hire a professional business valuator to determine what your practice is worth at the start of your planning process. That way, you can focus on boosting the value of your practice before you retire, transfer or sell your business, if necessary.
“The goal of the valuation process is not just to figure out the value of the practice – the goal is to do something about the value,” suggests the whitepaper. Most practices start to decline in value as advisors near retirement age because they are working less, the clients are getting older, and the advisor isn’t focused on the growth of their most valuable asset – their businesses. A formal valuation can help identify changes that either reverse that trend, or highlight the value that remains in your practice.
Establishing paperwork and a timetable
Once you have developed a transition plan and identified a successor, formalise that strategy with a contract that lists the valuation method, terms and timeline for the deal. The contract also should specify a timeline for key phases of the transition process, including mentoring successors or helping transition clients.
Share those plans with clients as soon as you have a contingency or succession strategy in place, but not before. Simply informing them that you have made provisions for the future alleviates any anxiety that clients may have about their own long-term financial security. Then, you can begin building relationships between your clients and your successor. Consider hosting dinners or other events to introduce clients to your successor, and plan to meet jointly with your clients for at least a year prior to an actual planned transition. These meetings will help clients get comfortable with the new arrangement, and they also will present an opportunity to watch your successor in action and ensure that he or she upholds the values and standards of service that you expect.
Alternatively, for a continuity plan arrangement, inviting your successor to client appreciation events or an annual party where he/she is introduced to the clients in a group format is sufficient.
Having at least a continuity plan in place will help you sleep well at night knowing your clients will be taken care of and your family will receive an income stream once you’re gone – effectively leaving a portion of your own legacy behind.
