practice management | PLANADVISER January/February 2017

Passing the Torch

How to start thinking about a succession plan for your practice.

By Judy Ward | January/February 2017
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Art by Claire Merchlinsky

While retirement plan advisers are gifted at planning for participants’ futures, they do a notoriously poor job of planning for their own—a situation that Jeremy Holly, senior vice president at LPL Financial in San Diego, finds supremely ironic. Many wait until they are close to retirement age before thinking about a succession plan for their practice, he says.

Why the inertia? “On the positive front, when financial advisers start their own firm, it’s because they love the profession. Years later, they still love it, and many don’t want to leave the profession,” says John Furey, principal and founder at consultant Advisor Growth Strategies in Phoenix. Many also have built up a comfortably profitable business that they hesitate to leave, he says. “The third element is the whole notion of ceding control. It becomes like a founder’s syndrome: ‘No one can do it better than me, and therefore I can’t sell my business.’ So the vast majority of advisers defer, defer, defer, because there is no trigger event, nothing pushing them to do it,” he says.

Meanwhile, clients and employees start feeling doubts. “Your clients are wondering, ‘You’re getting older. What happens if something happens to you?’ Over time, clients’ confidence in your firm is undermined,” Furey says. “Your practice might grow less in the last years of your career” as some clients and key employees leave amid the uncertainty. That ultimately makes the retiring adviser’s firm less valuable.

“Not addressing your succession plan creates risk, in terms of your clients’ and your employees’ confidence in your firm’s future. The longer you wait, the higher the risk gets,” Furey says. “For some financial advisers, that might be absolutely OK. They may think, ‘I want to help my clients as long as I possibly can, and I’m willing to take that risk.’ Where advisers make a mistake is if they assume that if they wait as long as possible to sell, there will be a willing buyer. By the time those advisers leave, there may not be much value to their practice.”

Defining Succession
When David Grau Sr. talks to advisers about succession planning, he uses the term very specifically. “In this industry, many people use the term ‘succession planning’ generically to mean ‘sell.’ And then when advisers think ‘sell,’ their first reaction is, ‘I don’t want to sell my business now,’” says Grau Sr., president and founder of FP Transitions LLC, a succession-management and valuation consultancy in Lake Oswego, Oregon. “What we mean is to build something internally—a business that is durable and sustainable.”

An internal succession plan does not happen all at once but incrementally, over a decade or more, Grau Sr. says. An adviser mentors a successor and builds a multi-tiered staff that he likens to a law firm’s practice of having senior partners, junior partners, associates and paralegals. “You attract young folks to your enterprise and allow them to buy into the equity structure, little by little, over the years,” he says.