The succession planning alternative

The maturing of the nation’s corps of financial advisers has spawned a growing body of literature that focuses on one key theme: The need for independent financial advisers to create a succession plan in order to provide continuity for their clients and to realize the full value of their business or practice.
Accompanying this message is usually the baffling statistic that some half to two-thirds of advisers have not developed a succession plan and that a sizeable minority — nearly 25%, according to a recent InvestmentNews Research study — lack the time to implement one.
If the issue is so important, why do so few advisers devote time or resources to it?
While not negating or minimizing the importance of succession planning — especially for larger practices and businesses — it may be appropriate to look beyond a “best practices” approach to the issue and examine:
• Why so many advisers are reluctant to engage in succession planning.
• Why contingency and transition planning may be a more realistic path.
• How to create and implement contingency and transition plans.
By offering an alternative view of succession, this paper is intended to encourage advisers to think more critically and realistically about the future they envision for themselves and their practice.
Download the full white paper, “The Succession Planning Alternative” now.
Why the Reluctance?
When asked why they don’t have a succession plan or why they have not made more of an effort to develop one, many advisers will explain — often almost sheepishly — that they are just too busy to get around to doing one, or that they’ve started to develop a plan on several occasions and were diverted by more pressing business.
Ironically, based on findings in the 2014 InvestmentNews Financial Performance Study of Advisory Firms, the majority of advisers do plan to retire or sell their business — but no time soon. Some 20% said they would retire or sell their ownerships take in 16 or more years, 27% in 11 to 15 years, and another 20% in seven to 10 years. But since the average age of advisers surveyed was almost 55, it would seem that many successful advisers don’t really plan to give much thought to succession until they are about 70!
If given an opportunity to speak freely and without sensing that they would be chided for a failure of management, many advisers would admit that they never get around to starting or completing a succession plan because they actually don’t want to sell their business/practice or turn it over to someone else — perhaps ever.
Yes, they believe they have built a great business and, yes, if someone came along with a big check many wouldn’t refuse it. But for most, the pot of gold at the end of the rainbow is more of a reverie than a likely scenario; many advisers are satisfied with the real-world probability of continuing to engage in work they truly enjoy and continuing the relationships they have developed with customers and clients. In fact, most want to keep doing what they do, but ideally just want to do somewhat less of it as they get older.
Therefore, for advisers giving thought to their future, the emotional and work/life personal questions raised by succession often are more compelling than the traditional personnel and organizational aspects of succession planning, such as selecting the right successor(s) and creating/implementing business procedures that give form and stability to the enterprise, or succession’s financial considerations, which include business valuation and structuring the purchase/sale.
Moreover, traditional succession planning focuses on how the adviser can extract value from the business and arrange its operations so that his or her personal input is minimized or eliminated — an orientation often inimical to many advisers’ emotional need to continue working and serving their customer base.
Taking advisers’ aspirations and value-driven needs into account, as well as financial and operational factors discussed below, experienced advisers may do well to consider a transition plan for their later years as an alternative to a formal succession plan.

This piece is an excerpt from the newly released white paper, The Succession Planning Alternative and was written by Cadaret Grant, in partnership with the InvestmentNews Content Strategy Studio