Four Keys For Financial Advisor Succession Planning – Keeping Your Business Thriving After Retirement

financial advisor succession planning

A common conviction among many financial advisory founders is a sense their business will close when they retire. That may keep you working longer that you’d like to. Sensing that the vision, dedication and hard work you developed into a thriving business will go up in smoke – just doesn’t feel right. A 2017 PwC study showed that family businesses selling to an outside party had more than doubled in five years, while sustained family ownership fell from 52% to 41%, during that same period.

If you are one of those who hold onto this conviction you’re right – most of the businesses in our sector do not outlive their founders for long periods of time. In fact, successful multi-generational financial advisory businesses are rare. A 2013 U.S. Trust study on Wealth & Worth showed that half of the children of family-owned businesses expect to get money when there is a change in ownership. This often causes family tension, especially when some children are not directly involved in the business. At the same time, those children that are involved in the business expect to be running it after you retire.

If you want the business to outlive you, here are four principles for financial advisor succession planning to develop to drive long-lasting family business success. These principles were isolated by Denise Kenyon-Rouvinez, a Professor at the IMD international business school in Lausanne, Switzerland.

Success in Business

Make sure that your vision, entrepreneurial drive and business skills are recognized by your heirs and understood to be requisite for continued success. Hire and nurture key employees to support the next generation’s transition to taking over the company. Make sure that you’ve established the ethical groundwork for your firm and emphasized its importance. In addition, develop a business succession process that includes gradually handing off important responsibilities to your successors. And finally, encourage and reward the adaptability of your children. As market dynamics change and competitive environments become more challenging, adaptability becomes an increasingly critical asset to your family’s business success.

Family Continuity

Family dynamics become more complicated when there’s a family business involved. But the potential challenges can be addressed head on. First, express pride in the accomplishments of the family and each family member; whether they are involved in your business or not. Encourage mutual support and a strong value system. Involve all family members in ongoing social interaction to develop a sense of unification among your children. Make sure that all your children are treated fairly. This is always important but becomes significantly more important when you’re all involved in the family business. Help develop conflict resolution methods with your children, which will inevitably arise at some point in time. This is critical to keeping the family business afloat, as ignoring or over-reaction to a conflict can cause long-term rifts. Finally, make sure everyone understands that there is strength in unity. Even after you retire from your financial advisory business, you will remain the leader of the family unit and a very important influence to the continued health of the family culture.

Success in Ownership

Teaching your children the tenets and responsibilities of successful business ownership, also falls under insuring the family is focused on the right principles internally. As you nurture a sense of trust between all family members, also make sure that you have diversified control across the group. Encourage use of the “equal/unequal” concept – where each individual’s perspective is equally important but there’s a distinction between those who have a more senior role in the business versus those that don’t. Everyone should have voting rights, but those more involved in the business are the final decision-makers. To avoid unnecessary family conflict, they should be raised to understand the sensitivity of their positions. Another important element of successful ownership lies in social responsibility. A general commitment to fairness and philanthropy should be encouraged. Finally, equity distribution issues should be dealt with directly and openly. It’s important that everyone understand what business decisions have been made and why.

What Do Successful Businesses Do Differently?

First, they separate issues. While many decisions will be made with involvement of every family member, it’s important that each decision is isolated and agreed to separately. This eliminates a “carry-over cloud” from affecting all decisions. Formal processes are established for important elements of business decision-making and ongoing operations. These processes can only be changed after a family discussion. Second-generation family members recognize their role as stewards of the company. Your vision and hard work have created a successful financial advisory firm – your children are taking on the roles of guardians of your creation. This doesn’t mean that nothing changes, but your stewards understand what shouldn’t change. Successful businesses have governance structures that recognize the role of the family but also maintain a suitable method for their involvement.

If your family is committed to your succession planning and keeping your financial advisory business growing, these principles provide a solid road map of critical steps and procedures you’ll want to discuss. After you check these topics off your to-do list, your focus can shift to planning your future as the family statesman.

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