Five Steps to Launch Your Succession Plan

Did you know that only 27% of financial professionals have a documented succession plan in place? Knowledge Labs® recently partnered with the Financial Planning Association on a survey to understand how financial professionals are approaching succession planning, and if they haven’t, to define what is holding them back. The figure increases to 41% when financial professionals were asked if they simply had “some form of a plan.” By not having a plan, financial professionals risk inadvertently delaying retirement, getting less than needed out of an exit and leaving clients in a lurch.

Consulting to thousands of financial professionals each year, I see firsthand how many financial professionals struggle to address their transition, even when it includes a practice they already intend to pass along to a junior colleague or their own children. A proactive succession plan can make all the difference, providing teams and clients with a smooth transition and giving retiring financial professionals greater peace of mind. Thoughtful planning is critical to creating a successful transition.

Here are five steps to help you get started:

1. Start as Soon as Possible

The closer financial professionals get to retirement, the more likely they are to say they’ll make a plan within two to three years. So the intention is there, but the time line is far too condensed.

Financial professionals should begin creating a succession plan at least 10 years out from their retirement. Even better, just as financial professionals tell their business owner clients: They should begin exit planning the day they start their business. Determining exit goals provides clarity for how financial professionals want to build their practices and can guide future business decisions.

2. Consider All the Options

There’s no one-size-fits-all plan. Instead, financial professionals should evaluate all the options for who they’ll transition their business to, how that transition will work and what they’ll each gain. The plan will look different depending on whether financial professionals plan to sell their business outright or create a partnership to cultivate a successor. While internal successions are the most common, our research shows that there’s no clear trend on how financial professionals plan to transition their practices.

3. Develop a Successor

In creating a succession plan, most financial professionals focus on the value of the business instead of the transition of their practice. Consider that 72% of financial professionals have a figure in mind for their business value, but only 61% say their plan includes information about the client transition and 41% report their plan includes information on the team transition.

A critical part of a transition is identifying a successor – information that deeply impacts the team and clients. Cultivating that person can be a long process. Much like the rest of the plan, it begins with goals. For example, if a financial professional wants a successor to be there for at least 10 or 15 years after he departs, then selecting a younger partner is smart. In fact, more than half of elite teams we research hire junior financial professionals to not only help grow the business, but to also tee up their team’s next generation of leadership. Once the successor is identified, include steps for developing the financial professionals’ business and leadership skills accordingly.

4. Have the Hard Conversations

Procrastinating on talking about uncomfortable things is a common habit for many people. And in identifying a business successor, difficult topics abound. For instance, in the evaluation period financial professionals should identify their own core values – and ask the person across the table about theirs. Much like the conversations financial professionals have when forming advisory teams, they need to get into the potentially uncomfortable details. When will the financial professional introduce the successor to clients? How and when will the financial professional cede decision-making control for the practice? How will the value of the book be determined? Will all members of the team stay employed past the transition? Tackle these issues early and head-on so that there’s ample time to sort out any disagreements and change course if necessary.

5. Communicate the Plan

Even if there is a plan, chances are advisory teams may not know about it. For instance, 58% of team members report that financial professionals have not shared any information regarding a transition or say they don’t know if information has been shared. Once a financial professional has a succession plan in place, communicating what that plan entails is necessary to ensure a successful transition. Team members need to know what to expect and their role in the process. As the transition approaches, financial professionals can set up individual meetings so that team members can ask questions in private.

Communication should also extend to clients, showing that you have their best interests at heart, engendering trust and giving them the opportunity to ask questions and get comfortable with the successor.

Ready to Begin?

Yogi Berra famously said that “If you don’t know where you’re going, you’ll end up someplace else.” Financial professionals who start early with their succession planning will more likely end up exactly where they want. Explore options, decide on a plan, and then focus on developing the right successor. Financial professionals who do this will not only ensure that they meet their own retirement goals, but also provide for a smooth transition for their teams.

Learn how to strategically position your practice’s legacy with our Succession Planning resources.

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