Rethinking Succession: The Steps You Need to Take to Get Ready for the Future

Whether an advisor is one among thousands of employees of a wirehouse or is the owner of his own firm, creating a succession plan for the business is likely more of a priority today than a few years ago. Finding the right next generation talent has become an industry-wide challenge, crossing all models and firms. Until recently, advisors were generally confident that at the necessary time (typically in anticipation of retirement), the right heir would be identified, prepared to step in and carry on the business. This, however, is no longer a sure thing, and more importantly, not the ideal solution. The current average age of advisors is now in the mid 50’s and every one of them looking for a partner faces increasing competition, with traditional firms and emerging opportunities all vying for a small pool of talent.

Succession isn’t retirement

The first step to developing a succession plan is to adjust your thinking. Advisors need to think about succession in a different light. Succession is not interchangeable with retirement; it creates continuity for the business enterprise as well as for client relationships. While this plan may anticipate what happens if and when an advisor retires, succession is more accurately about articulating a plan that allows staff and clients to feel secure in the future and is fundamental to acting as a fiduciary. Succession planning also allows a firm to remain relevant to clients’ next generation and is key to new business development. Having a succession plan in place enhances a firm’s value should an acquisition or merger be contemplated.

The next step is to answer a few key questions to determine just how committed you are to this process.

  • What are you willing to do to solve your succession needs-how flexible can you be?
  • Your best succession plan may not be something you create; what if it could be found at another firm?
  • If you currently own your business, would you trade some of that autonomy to gain an ideal next gen solution?
  • If you are currently an employee, would you invest in a junior partner by foregoing some of your own compensation and sharing assets to guarantee an early tenure advisor’s immediate success?
  • Once you’ve determined your commitment to the process, it’s time to rethink where you are going to find your successor.

    Home-grown successors

    For many advisors the biggest achievement of their careers is to have a son or daughter decide to follow in their footsteps and come into the business with a view towards eventually taking over. If this is a path you’re considering, involve your children in your work early on. Show them the strength and success that comes from building a family business. And certainly don’t take for granted that they understand what you do.

    A succession plan emerges right from your own backyard

    Advisors also need to look to their communities – including spheres of influence and clients – to uncover potential next-gen talent. It’s important to widely communicate your interest in sponsoring an intern, however this must be accompanied by a sincere willingness to introduce them to the business and have them experience your life as a financial advisor.

    Make it known to firm management that you are looking for a successor. This will create a recruiting opportunity for the local branch and asks the manager to be on the lookout within his existing advisory pool.

    Often it’s right in front of you

    Don’t overlook the people you work with every day. Your next-gen talent may very well already be members of your staff or team—but in non-advisory roles such as client associates or administrative support. Exposing your colleagues to the wealth management side of the business, involving them in the client service and business development processes, and encouraging their ongoing development may allow you to see skills and potential in them that they don’t recognize in themselves. Be vigilant – always on the lookout for talent – not limiting yourself to traditional sources like your firm’s recruiting program, if you’re fortunate to have access to one. Regardless, the process for mentoring talent must be clearly defined:

  • What is expected of them and how do they achieve the path to partnership?
  • What can they expect of you in terms of your time and training?
  • Time, money, patience and flexibility required

    Development of the next-gen requires an investment of time, money and patience. The perfect readymade, self-sufficient partner with all the necessary experience and clients may not be a realistic expectation. Many advisors spend years fruitlessly waiting for the perfect “Mini Me” replacement when it may be more productive to adjust expectations.

    A solid 10 years may be necessary for developing someone new to the industry into a legitimate successor. This means that planning ahead is critical. Too few millennials are choosing this path. It’s a hard business to get started in; non-solicitation rules, firm account minimums and a more relationship based way of building a book all are creating increasing challenges to new advisors. Training programs have only limited success, as it’s difficult to teach the relationship-building qualities that make an advisor successful in today’s environment.

    There is much an advisor can do to create a solid succession plan. Recognize that “succession planning” is less about retirement planning and ideally isn’t an emergency exit strategy. Plan far ahead by mentoring quality but inexperienced, raw talent. A willingness to be flexible and open to a variety of sources for talent will increase the odds of finding the right person. Most importantly: start now. The clock is ticking and the future leader of your business may not be ready to stand in your shoes for many years.