Many advisors have an entrepreneurial spirit and as such, they view their practices as their “babies.” Rightfully so. The care and dedication required to build a successful practice are irrefutable.
Those are among the reasons succession planning is so important. An easy fix for advisors that don’t have partners or heirs that want to take over the practice is to sell it and there’s plenty of data confirming that industry consolidation is on the rise. For many advisors, a sale is the preferred avenue of exit, particularly if they can command a lucrative price tag. There’s nothing wrong with that.
However, some advisors want to take a different approach, embracing a true succession model. There’s nothing wrong with that, either. It’s admirable and makes a lot of sense if the practice already has the right people in place. That’s easier said than done and traditional succession is becoming more difficult because fewer people are entering business.
From those points, advisors shouldn’t infer that succession is off the table. It’s very much still in play if they take the necessary, proper steps.
Tips for Improved Succession Planning
Younger advisors might think time is on their side, but for those with spouses and families, it pays to be proactive when it comes to succession planning and for older advisors that have ignored this task, the time is now to get on the ball.
Brie Williams, head of practice management at State Street Global Advisors (SSGA), provides valuable insight regarding how advisors can build a solid foundation for succession. Areas of emphasis include the successor’s acumen as a business owner, their ability to provide top-flight client experiences and fiduciary elements.
“As an advisory practice owner, embracing clarity and discipline in your business continuity and succession planning will serve you well. Doing so empowers you to consider opportunity costs, which can help guide you towards more profitable decision-making,” notes Williams. “Clarity and discipline are important elements of business plans that incorporate vision, strategy, and tactics.”
She also highlights the pros and cons of internal succession, a direct sale and a merger with another practice. There are a variety of points to consider on all those fronts and I encourage advisors to view those factors at this link.
Succession Steps to Follow
Advisory succession scenarios don’t always mirror each other, but there are frequent similarities from practice to practice. With that in mind, there are some universal succession planning steps for principles to implement.
Those include allotting enough time for a smooth transition to new ownership and ensuring the outgoing principle(s) has adequate command on the practices valuation as well as the areas that need to be shored up in advance of an internal succession or sale. As for the impact of succession on clients, transparency can carry the day.
“Transparency is essential for client assurance during any transition — planned or unplanned. Clear communication and collaboration with the eventual successor ahead of time helps ensure continuity in service, investment management, and product selection. This encourages a proactive approach for client retention as your business evolves,” concludes Williams.
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