A succession plan clearly defines who will take over the practice in the event that you can no longer be there. While most financial advisors know how risky it is to not have a succession plan in place for your practice, many put off the work of making one because the day-to-day of serving your clients just feels like a higher priority—and it is!
However, delaying succession planning puts your clients at risk just as much as your practice. If you haven’t already, now is the time to finally put a succession plan in place. Here’s why your practice needs one and how you can build one.
Many smaller or newer firms postpone succession planning because it doesn’t feel that urgent and there’s so much other work to do that this succession plan just gets pushed to the back burner. However, a succession plan is just as important for a newer financial advisor as it is for a seasoned one. The longer you put it off, the longer your practice is exposed to the following risks:
If you don’t name a successor and lay out a clear plan of action for transitioning to new leadership, your spouse or family could be stuck with a practice they may not know how to run. Making decisions about what to do with the practice, especially when there are clients to serve, is not easy and not fast.
Without a clear plan in place, employees will be left with no guidance and tons of uncertainty about what to do next. Will the practice keep running? Will it be sold? Without answers to these questions, employees will, understandably, feel the need to go elsewhere.
The same is true of clients. The longer your practice is in limbo while your family member or whoever is left with the decision-making responsibility figures out what to do, the more anxious clients will become and the more likely they will be to start searching elsewhere.
If there’s nobody to take charge—especially if there’s nobody qualified to provide financial advice or manage clients’ accounts, all those clients who have depended on you for years will be unexpectedly stuck without an advisor. Your clients need reassurance that the level of service they’ve grown accustomed to will continue.
While it might feel like a time-consuming task that’s taking away from time you could be spending with clients, succession planning doesn’t have to be complicated or intensive. Here are some tips for getting an airtight succession plan in place without too much hassle.
The first and most important step is to find someone willing and able to take over in the event of your death or incapacitation. This should be someone you know and trust; someone with the skills and expertise to provide a comparable level of service to your clients.
Ideally, it should also be someone with a similar management philosophy and approach to serving clients. Not only does this reassure you that the quality of service you’ve provided all these years will continue, it makes the transition as smooth as possible since the new leadership will have a similar approach.
After you’ve chosen a successor, make a legal agreement that lays out all the terms. This can be a mutual arrangement, in which you also agree to be the successor of the other advisor’s practice if something happens to them first.
Either way, this legal agreement usually takes the form of a purchase agreement. The named successor agrees to buy your business and take over day-to-day operations in case of your passing.
To carry out the terms of the legal agreement, you or your successor might need to take out insurance claims on each other. If they don’t have the capital to buy your business outright, for example, an insurance policy can help cover this cost. The same is true vice versa: if you are their successor and don’t have the capital to buy the business, take out an insurance policy.
It’s important to do this as part of the succession planning process because you need to make sure that the financial side of this arrangement is secure. If your successor doesn’t have the capital or the qualifications for insurance, for example, you might need to find a new successor. It’s good to know this ahead of time so that there are no loose ends left when the time comes for the succession plan to take effect.
Once all the legal and financial aspects of your succession plan are sorted out, it’s time to get into the nitty gritty. When your successor steps into work on day one, how easy would it be for them to find all the information they need for each of your clients? How much of the knowledge you carry in your head—such as a particular client’s likes and dislikes—have you written down and kept organized?
In short, would your successor be able to step into the role and quickly get acclimated with all the financial and personal details of each client that they will now be responsible for? If not, it’s time to fix that.
Taking detailed, consistent notes during your meetings and keeping those meeting notes organized is key to doing that. Plus, an easy-to-navigate organization system will make your own day-to-day operations more efficient in the meantime.
You can develop a notetaking and organization system yourself or use Pulse360, which has tags, templates, and other helpful features that make it easy to sort and search through your meeting notes for the exact information you need in seconds.