If you’re a financial advisor in or heading toward your 50s, you should be thinking about building a succession plan that will allow you to transition your practice to another advisor so you can enjoy your retirement years. Easy for me to say, right?
Succession planning shouldn’t be a foreign concept, though. Think about how you help your clients develop retirement plans based on their circumstances and goals for the future. Many of them probably find the thought of saving enough to support their lifestyle an insurmountable task. But you help them see the big picture and move toward their goals, step by step.
Building your succession plan is no different. Although it can be challenging, try not to let natural apprehensions keep you from this critical task. 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:
- 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.
- A 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
- 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 step by step, you're more likely to have a smooth, successful transition. Stay tuned for Part 2 next month, where I’ll share more information on how to complete your succession plan.
Maria Considine King is vice president, practice management, at Commonwealth Financial Network®, member FINRA/SIPC, an independent broker/dealer–RIA.