What must a succession plan entail?

Rebecca Pomering, chief executive of Moss Adams Wealth Advisors LLC, helped somewhere between dozens and hundreds of advisory firms develop succession plans during her 11 years as a management consultant for Moss Adams LLP. Now she heads up the firm’s strategic-planning and growth objectives. Her firm doesn’t have a succession plan document, but its six partners all have identified successors whom they continually train and develop, Ms. Pomering said.

InvestmentNews: What is the one thing all advisers seem to overlook when they start contemplating succession planning?

Ms. Pomering: One thing they overlook is making sure they are training a successor or multiple successors on all the aspects of the role that needs to be succeeded. Let’s say you have a solo practitioner with a $1 million practice and they look for someone who can take good care of those clients, but they forget about the fact that they also grew those clients, and that successor is eventually going to have to re-grow that practice. But they haven’t necessarily been training those skills. Maybe they need two successors? That owner is probably running and managing the business, they’ve done all the business development to grow the business and they are the lead adviser on the clients. Those are three different roles — and they either need to find someone who can do all of those things or they need to have multiple successors. I think, frequently, they think they just need someone to take over these clients, disregarding the skills set that it took to build that client base and the entrepreneurial skill it took to grow and run the business itself.

InvestmentNews: Is an adviser’s succession plan something he or she should be discussing with clients?

Ms. Pomering: I think they should be prepared for it, because I think many of their clients are talking to them about it. It’s a risk that clients see, especially when working with a small firm or one with an aging founder. It’s also something that we are very proactive about talking to our clients about. It’s what we see as one of the advantages of working with a firm of our scale. Our clients are working with a team all along the way. We are introducing our clients to our succession plan and our peers throughout their relationships so it’s not even a transition, it’s just part of the way we always serve clients.

InvestmentNews: What are the biggest things that stop advisers from developing a succession plan for their business?

Ms. Pomering: It gives them some clue that they might die someday. The mortality aspect of it is not something that a lot of people want to think about, but many people would say that’s what stops people from doing financial plans and estate plans. Also, people think that when the time comes, they will have a lot of options. They are not convinced that they need to decide now. Third, they are not exactly sure what it means to develop a succession plan. They say, “I have good people on my team, I have life insurance. How much more articulated does it need to be?” Some people say, “I don’t have a written document, but I have a pretty clear sense of what I’d like to happen.” I don’t know if that means, “I have a succession plan,” or not.

InvestmentNews: Are those steps enough or is a formal document necessary?

Ms. Pomering: In our organization, succession planning is an ongoing, living and breathing process. I’m not as hellbent on there being a written succession plan document as I am making sure that I really have a sense of who can take over the client responsibilities, the business development, the leadership and management responsibilities of the senior people in my practice. And what we are doing to develop those people who have been identified as successors? I could write out a document, but if I’m not actively developing those skills in those people, when the time comes to pass, they’re not actually going to be prepared to be successors. The action behind the succession plan is the hard part.

InvestmentNews: Many succession plans involve merging with other firms, but why do so many mergers fail even after months of negotiations?

Ms. Pomering: Mergers are never as easy in practice as they look on paper. Much of the reason is the entrepreneurial spirit of the firms that are merging. They might have the same custodian, they might have the same investment platform and a similar client profile. But are they really willing to give up control and be part of a merged organization? Both parties are giving something up in the merger, and that’s where the challenges come in. People think they talk about all the sacred cows before the deal is done, but many more things emerge after the deal is done. Some of those are positive, and some of those make the true integration of the firms very challenging.