Why intention is crucial in succession planning

Advisors with their own practices must answer several questions well before the end of their careers

Why intention is crucial in succession planning

As committed stewards of their clients’ wealth, financial advisors put a huge emphasis on retirement investing, estate planning, and other long-term preparations for life milestones. But they may have an unfortunate blind spot when it comes to their own situation.

“Advisors frequently create succession plans and develop legacies for their clients but ignore their own,” said Jarrod Upton of Herbers & Co., a consultancy for financial advisory firms, in a piece for ThinkAdvisor.

He noted that advisors need to work with intention as they establish their succession plan, with goals set years in advance. Otherwise, they’ll retire without a legacy for their business to carry on, nor any options to derive value from what they’ve built up.

According to Upton, advisors must answer three questions when starting a succession plan. Are they looking to eventually sell their company? Do they want to incentivize someone else to take over in the future? Or do they see their company as a way to support their lifestyle or personal needs?

From a practical perspective, he noted that succession plans can basically be either internal or external. In internal transitions, an advisor passes their business to a relative or the next generation of talent that rose up within their firm.

“Internal transitions take the most time, because they involve bringing together and finding the right people who are technically and strategically skilled,” Upton said, adding that having shared values is important to avoid hurting a firm’s brand.

Exiting advisors can earn more money from internal succession plans, but only if they’re done right. One major mistake, according to Upton, is choosing a single successor; a transition plan that’s begun early will gather more positive momentum as multiple employees buy in and participate in carrying on the legacy.

While internal transitions can lead to higher payouts over a longer period, external factors can always arise to derail them. With that in mind, advisors should also be open and prepared to pivot to external transitions — selling their firm to an outside party.

Whatever transition they ultimately implement, Upton said advisors should start early to get things right. A smooth transition, he emphasized, is critical not just for the original advisor-owner, but also for their clients and the team members they leave behind.

“Many advisors have good intentions about their succession plan,” he said. “But far too many start the plan and never finish.”


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