Succession Planning For Advisors

It is ironic that the very people who help others plan for retirement often give little or no thought to what happens next when their financial advisory careers begin winding down.

This is a serious concern to many in the financial world because according to a Cerulli Associates report (4/7/2023), over 100,000 advisors controlling $10 trillion in assets are anticipating retirement over the next ten years. Of that number, it is estimated that about 25% have no formal succession plan in place. To exacerbate matters further, all this will be happening while the greatest wealth transfer in history occurs.

It is no wonder why so many in the financial world are concerned.

Failure to plan is planning to fail.

Succession planning is not an event. It is a complex, time-consuming process that can take many months and even years to effectively design and implement, which is why many advisors tend to ignore it until the reality of their own retirement forces them to pause and take notice. For advisory teams and especially solo practitioners, the failure to develop a comprehensive succession plan increases the odds of failure of their practices.

Succession planning takes time because it is a multi-dimensional challenge with many moving parts. It involves finding a potential teammate who not only shares your vision and values but has the key competencies and skills necessary to ensure practice continuity. The expected rise in the number of advisor retirements coupled with talent shortages and skill gaps in the current pool of replacement candidates makes succession planning an even more challenging task.

Whether you are a sole practitioner or member of an existing advisory team, the succession planning decisions you make or don’t make will impact your reputation and define your legacy.

Reputation vs. Legacy

Many professionals confuse their reputation with being the same as their legacy. This is a critical error because reputation fades over time while legacy is what remains even after you are gone.  Your financial practice may be firing on all cylinders today, but what will happen when you are no longer there in the driver’s seat?

Dedicating the time and effort necessary to formulate a succession plan is not a self-centered endeavor. To the contrary, it is a client-centric initiative of the first magnitude because the culture of your practice is what most likely attracted clients to you in the first place. Finding a successor whose vision and values align with yours is not just a best practice of succession planning. It can be the sterling capstone to your career that will protect your reputation, define your legacy, and ensure the future growth of your practice.

The Succession Planning Process

Best practices for succession planning are similar in many ways for both sole practitioners and advisory teams. The minutiae of succession planning can vary greatly, but the broader context of what works best is very much the same.

  • First, start the process as soon as possible so that it is a proactive instead of reactive initiative. When advisors or teams begin the process early on, they have more time to make smart, thoughtful decisions. This enables the process to be more of a non-event rather than a tidal wave of change when it finally happens.
  • Define the competencies required of a successor advisor. Know what skills, knowledge and experience are required of an advisor who will be the best possible fit for your roster of clients and their subsequent heirs.
  • Identify successor candidates. It could be an internal selection involving advisors already working at your firm, an exsisting team member, a family member, or an external recruitment effort. Identifying more than one candidate affords you the benefits of creating a larger team to handle the workload.
  • Create learning and development programs that can accelerate advisor development. No two advisors have the same strengths and weaknesses, so mentor and coach each one according to their individual needs.
  • Continually evaluate the progress of your succession plan. Establish goals and make them measurable so that you can evaluate progress and provide the opportunity to adjust the plan as necessary.
  • Manage a smooth transition. Some advisors will require more time and patience to acclimate to their new position, others less. Adjust and execute your transition time frame accordingly.
  • Create a transition plan and stick to it.

Regardless of the size or stage that your financial practice is currently at, a point in time will occur when a succession plan becomes necessary. Understanding succession plan best practices will make your journey into retirement a more rewarding and wonderful experience.

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