Staying Power
It goes without saying that a good adviser has the expertise and experience to help clients navigate the planning process with equal measures of carefulness and confidence. What is less obvious is the need for advisers to bring the same focus to bear on their own future.
This is the conclusion drawn by a recent survey conducted by SmartAsset. Earlier this year, the firm surveyed more than 460 financial advisers, asking them questions ranging from what type of succession plan do they have at their firm, to how has the COVID-19 pandemic affected the way their firm views succession planning.
Among its key findings, the survey shows that financial adviser succession planning is simply not a top-of-mind issue for most professionals or for their clients. Only a little more than a quarter (27%) of financial advisers have had a succession plan in place for six or more years. Some 38% of the advisers surveyed implemented a succession plan in the last several years, meaning that, as of this February, roughly two-thirds of financial advisers had some type of succession plan.
Across the firms surveyed, most advisers plan on an internal succession. Almost 71% of those with a succession plan intend to pass their business to a current firm employee. Another roughly 11% mean to pass their business to a family member, according to SmartAsset. Only about 9% of financial advisers plan to sell their business to another firm.
Adviser Dorann Cafaro went the family route. She had owned what is now Cafaro Greenleaf until 2011, when her daughter, Jamie Greenleaf, became the lead adviser and the firm’s principal. Another development for the practice, which has its offices in Red Bank, New Jersey, came in 2020, when OneDigital bought Cafaro Greenleaf. The practice wanted to offer its clients a more holistic view of their benefits spend, Greenleaf says. (Read our full discussion with Greenleaf in “Family First.”)
The Means to a Graceful Exit
Of surveyed advisers without a succession plan, roughly 56% said they expect to create one sometime in the future. The remaining 44% of those advisers—or about one in five of all respondents—have no plan to transition or sell their business and do not intend to form a plan.
Wilson Hoyle, managing director and head of CAPTRUST’s Advisor Group in Raleigh, North Carolina, says such figures are not surprising. He says many smaller firms in the marketplace are inundated with serving clients and attempting to grow their practice. He says CAPTRUST, for its part, has had strong success in helping its advisers retire smoothly, mainly because of the resources and experience the large national company can bring to bear in support of its people.
A global company known for acquiring smaller adviser firms is insurance broker Hub International Ltd., which made news in January 2019 for purchasing Sheridan Road, a Chicago advisory firm with more than $14 billion in assets under advisement. Sheridan Road co-founders Daniel Bryant and Jim O’Shaughnessy were both recruited to Hub. The partners felt it was critical to take this path—to join a larger entity that would enable the business to compete effectively in the midsize- and large-plan markets, says O’Shaughnessy. (Read our full discussion with O’Shaughnessy in “Competition and Succession.”)
Although the COVID-19 pandemic changed many things for financial advisers—perhaps most notably how they communicate with clients—most financial advisers’ succession plans were unaffected, according to SmartAsset’s research. The survey shows that about 20% of advisers created a succession plan during 2020 or 2021, but roughly 93% of financial advisers said the pandemic did not change how their firm thinks about succession planning.
Of firms that did notice a change, most advisers point to succession planning being seen as more of a necessity than it had before. One adviser told SmartAsset that, with the threat of COVID-19, a practice must consider “what happens to [its] clients and revenue in a worst-case scenario.” Other advisers cited their desire to benefit from the hard work they put in over the years.
Several Approaches
Reflecting on the experiences of CAPTRUST’s advisers, Hoyle says, there is not necessarily one superior succession planning approach, whether internal or external.
“We have had many examples where an adviser was part of a team, and it is natural for him or her to take over leadership of the retiring adviser’s book; it is more or less completely seamless,” Hoyle says. “I will say, that strategy seems to be more typical for advisers who focus on wealth management, anecdotally.”
Hoyle says another approach comes into play when an adviser has dozens of retirement plan clients, and each plan sponsor committee has its own personality and challenges.
“Those are the types of situations where we can, instead, look to split up and share that business across our base of CAPTRUST advisers, according to personality, geography, client type and other factors,” Hoyle says.
Such has been the case with Mark Davis, senior vice president, financial adviser at CAPTRUST in Thousand Oaks, California. Davis joined CAPTRUST in 2009 and is now in the process of planning his client succession. “With the luxury of having so many talented advisers on the team,” Davis says, “I was able to sort out the best person to take over plan A, plan B, etc.” (See our full discussion with Davis in “Multiple Successors.”)
CAPTRUST has also had success with external succession plans, Hoyle says. “For example, we pretty recently had a person in the southeast U.S. with a very high-end and complex stable of ERISA [Employee Retirement Income Security Act] plans to deal with, and we knew we needed a special person with the right expertise to carry that water. So, we used that retirement event as an opportunity to bring someone in from the outside. That was a very successful transition,” he observes.
Along the same lines, SmartAsset’s analysis includes some recommendations for advisers who are just starting out with the process. Among the key takeaways is the fact that it is not only the business owner or lead adviser who should be factored into a good succession plan. The best plans address all levels of the organization, especially when it comes to larger firms with a more expansive leadership team and staff.
“The first step in your planning strategy will be to assemble a team of company leaders who will assist you,” the firm recommends. “Typically, this team will include human resources staff, fellow company executives and members of the board. You should, of course, include anyone else you think could be helpful in identifying or nurturing potential.”
Eventually, the adviser leader should establish pipelines and strategies for any role in the organization that, were it to sit vacant for any extended period of time, would cause significant difficulties.
“To start, though, focus on your most important positions,” the firm says. “Typically, this will be C-suite executives and presidents, as well as any vice presidents in roles critical to the company’s revenue stream and day-to-day operation. After you’ve successfully developed pipelines for these positions, you can expand with a better idea of how to go through the process.”
Simply put, the best succession plans are specific and targeted.
“Once you’ve established which roles you want to include in your succession planning strategy, your next task is to establish the criteria you would want potential development candidates to meet,” SmartAsset recommends.
The final ingredients are open communication and a lack of surprises for stakeholders.
“One you have established which positions are in your succession plan and what you’re looking for in potential candidates, you’re ready to start tapping employees and beginning their development,” SmartAsset suggests. “If you foresee the development process stretching over several years, make that clear to the employee. That way, she isn’t expecting a promotion in a matter of months.
Growing Your Practice | Succession Planning stories
Art by Emine Yilmaz