By BRENDAN C. WALSH
Think about what would happen to your business if you weren’t around anymore. Your office, your employees, your clients and their assets will all continue on in some way once your time as an advisor ends. Now, think about what would happen if you suddenly left your business today. If the results would be unfavorable, you’re not alone among financial advisors, but the gap can still cause problems down the road.
Closing that gap with a succession plan can provide a crucial level of security to you and other stakeholders in your practice. By preparing for what happens when you are no longer part of your practice, you can leave your legacy on firmer ground.
Provide Peace Of Mind
It’s easy to put off succession planning simply because it’s not an immediate priority, much like the way our clients may put off saving for retirement or other financial goals. We are busy with our day-to-day focuses – advising our clients and growing our businesses – and assume that there will be time in the future to take care of these more introspective tasks. It’s also uncomfortable for many people to confront the ideas of retirement or death, and we are no different from our clients in this instance.
We must remind ourselves that directly addressing this kind of discomfort is the best way to resolve it. By setting a succession plan, we can reassure ourselves that our firms will be in good hands in the future. We can also give comfort to our employees and clients by demonstrating our preparations for their futures alongside our own.
Similar to how we advise clients related to their retirement savings, the earlier you develop a succession plan the better. If you’re not ready for a full-blown plan, consider short-term contingencies and plan to establish directions for your firm that cover a brief period before another person can take the reins. This short-term option serves similar functions as a succession plan and provides the same guarantee that your firm will be taken care of in your absence.
Select A Process
The most important part of any succession plan is your designated successor, whom you can find using an internal or external process. An internal process sources a successor from within your own agency, which is optimal when you have younger employees who may be interested in leadership and have or can develop the necessary skills to run the practice. Since the average financial advisor may be older, you may need to look outside your own organization for successors.
You may want to manage this external search yourself, especially if you built your business from the ground up, but we advisors are not professional recruiters. Remember that spending time looking for a successor means less availability for financial advising. Our time is valuable and it is often less expensive and simpler to use recruiting firms or headhunters instead, and these outside partners can provide a crucial source of accountability as well.
Work with your chosen successor to determine what kind of handover best fits the situation – though you should give yourself adequate time to handle the legal and accounting paperwork that comes with any handover. Many advisors decide to have successors buy out the firm due to the relative simplicity. Remember, though, that buyouts work best when the buyer has a steady stream of revenue or another source of funding.
When my father and I discussed his succession plans, we chose an alternate route. Instead of buying out my father’s firm, I started a new firm that his merged into, and I agreed to pay him as a consultant for seven years. This allowed my father to transition into “semi-retirement” at his own pace, continue to work with some clients and be paid for his valuable advice. Speak with your firm’s stakeholders and an attorney to determine which succession plan method is the best for you.
Succession plans provide you and your firm with a layer of security that affords direction for your employees, partners and clients after you stop working. Give your practice the same level of attention and care that you give your clients’ retirements and build a foundation prepared to outlast the person who built it.
Brendan C. Walsh is the founder, president and managing partner of Catalyst Solutions Group. He is a nine-year member of MDRT. Brendan founded Catalyst Solutions Group in 2015, after working for his father’s original firm, Walsh Financial Group, and Northwestern Mutual Financial Network prior to that. He lives in Grosse Pointe, Michigan, with his family.