Essential Steps to Building Your Financial Advisor Succession Plan

Ryan Shanks February 14, 2022
Essential Steps to Building Your Financial Advisor Succession Plan

older businessman stands in front of group of younger employees244803921We advise our clients to invest as preparation for their future, yet many of us fail to heed the same advice when it comes to our careers. We’ve all had a client come to us wondering if it’s too late, if they’ve already fallen too far behind where they should be in their financial planning. And, let’s be honest, while we can always do more the earlier we start, better late than never really holds true in that situation. But better late than never isn’t always the best career plan. Perhaps it’s time to create your own plan for the future and, as a financial advisor, prepare your own succession plan.

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What is a Financial Advisor Succession Plan and Why Does It Matter?

A succession plan ensures that should anything happen to an advisor or, in some cases, the firm, their business and client data and accounts will be safe, secure, and in good hands with either another advisor or firm. In 2016, the SEC attempted to codify a requirement for a succession plan through a new rule the Investment Advisors’ Act of 1940. The guidelines aimed to stress the importance of succession plans, maintaining business continuity, and mitigating the risks and potential impact of big business disruptions including:

  • Digital disruptions (cyberattacks and tech failures)
  • Natural disasters
  • Personnel changes (death or departure)
  • Service stoppage or firm closure

Any one of these events could be potentially catastrophic to you, your firm, or your clients. Succession plans are designed to protect everyone involved. Despite the potential harm, many firms and advisors fail to construct a thorough plan. It’s rarely through negligence or failure to consider how important continuity is, but instead, it’s often a reluctance to confront the realities of what a succession plan means (retirement or worse) or an assumption that someone will step in as needed.

Consider that, as financial advisors, we’d not let a client forget to name a beneficiary. There must be an established chain of custody for accounts and finances and the same is true for your clients. Think of your succession plan not as a career-ending or potentially tragic moment but as another way to service and take care of your clients and accounts.

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5 Things to Consider Before Building Your Succession Plan

Perhaps one of the other big reasons people avoid succession planning is because it isn’t easy. Not only does it force many financial advisors to confront the realities of their careers (and end of that career), but it also requires considerable self-reflection and answering some difficult questions about your career trajectory, your career plan, your priorities, and your current situation.

Not to drag out an analogy, but these are the same types of questions we ask our clients to answer and consider when scoping out their financial plans and retirement plans. They’re not dissimilar; they’re both about continuity. And, as you know, those questions and conversations often need to be exhaustive. So, a few things you’ll want to consider before drawing up a succession plan:

1. Know what you want and what’s important to you

Understanding what you want for your retirement and/or your clients once your tenure ends are vital to your plan. For example, if you’d like to continue on with your firm or partner as a consultant, ironing out what that looks like for your relationship is essential. Similarly, identifying another advisor, perhaps one who shares the same values and visions as you do, will be essential.

2. Plan ahead and proactively

The temptation to put this planning off is significant. It’s why, as of 2018, less than 30% of financial advisors had a plan in place. Succession planning, like retirement planning, is serious business. Waiting too long can have serious consequences, especially in the face of unexpected events. Don’t procrastinate, this is a vital aspect of your business, your career plan, and your client care.

3. Be meticulous and thorough

Not to be grim, but write your succession plan as if you will not be around to answer questions. The last thing you want, when someone else is carrying out your plan, is to leave loose ends or unclear instructions that can be misconstrued. You want to be very clear about your desires and your expectations and, to ensure you are, that means being detailed.

4. Plan and prepare for contingencies

Sometimes plans don’t work out, so consider the possibilities. For example, let’s say you name someone as your successor, an advisor with whom you’re aligned on strategies, values, client care, and more and they are, for any number of reasons, unable to step in. What’s the contingency plan?

5. Be transparent and fair with the process

When we say be transparent and fair, we mean to everyone in the process, you, your partners or colleagues, your clients, your family, everyone. Being open and honest about your needs, your wants, and your goals is vital to this entire process. Not only do you want to make sure your needs are met, but you also want to make sure your successor is prepared and your clients secure in knowing they will be taken care of without chaos or confusion.

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5 Steps to Building Your Financial Advisor Succession Plan

Once you’ve thoroughly considered your wants and needs as well as those of your clients, you’ll want to start the actual succession planning process. While this is in no way intended to be an exhaustive list of all of the steps, we’re going to try to cover the essential parts of the process.

1. Identify Your Successor

This is an essential first step as it’s the most important part of your plan. Consider your colleagues, your partners, and your larger network. If you’re on your own, now is the time to consider finding a suitable partner, one who might be in the position to step in when you are ready to retire. When choosing this person, consider the culture of your firm, your goals for your clients, your values, work ethic, communication skills, and any other important aspects of your role. You want the transition to be as seamless as possible and choosing the right person is important. 

2. Double-Check Your Documentation 

This is a not-so-subtle reminder to be using your CRM tools to be taking copious notes regarding your clients, their preferences, their strategies, their risk tolerance, and more. The more information you include the more helpful this will be to your successor. Further, make sure you’re keeping up to date on all documentation required for your clients and your business. Keeping detailed and organized information regarding your clients, policies, procedures, compliances, and more enables your successor to step right in and be as effective and efficient as possible.

3. Consider a Buy-Sell Agreement

If you don’t currently have a partner or a partner who is willing to take over for you, you’ll want to consider a buy-sell agreement with another firm. This ensures that you’ve helped select the firm and advisors who will take over in the same way that naming a successor within your firm (or your partner) ensures you have a say in who takes care of your clients.

4. Build In Your Transition

If you’re in the position of being able to build in time for the transition, do so. Take a look at your retirement timeline and identify the milestones before that time for you to hit goals and objectives in this process. Whether it’s knowing how long you’ll want someone to work with your team or your clients before your retirement (you may want to have someone by your side for a year or more prior to handing over your business) or knowing how long you’ll want to stay on as a consultant to assist with the transition period, factoring in the time for a handoff is crucial, especially for your clients.

5. Create and Document Workflows

The goal here is to ensure that the transition is as seamless as possible. While you can use transition time to have your successor shadow you and get to know your clients as well as your processes, having documented and repeatable workflows and processes will assist the new advisor in stepping in. From onboarding new clients to schedules for client communication, you’ll want to keep everything as consistent as possible through the transition.

Succession planning is one of the most important yet overlooked business processes, especially for financial advisors. Whether you’re with a firm or an independent broker, establishing business continuity and ensuring your clients are cared for is essential.

If you’re struggling to find a financial advisor who can be a part of your plan, get in touch with the FA Match team today. Our experience in the industry and access to advisors means we can help you find the best fit and give you the peace of mind a detailed succession plan can offer, especially when it, and your business, are in the right hands.
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