Transition well: planning for advisor succession
Advisor succession has always been a topic of interest in our industry, now more so than ever as the average age of advisors continues to increase. Earlier this year, Investment Executive published the 2017 edition of the Brokerage Report Card and determined the average age of the advisors in this year’s survey was 51.3 years of age, up from 49.6 years of age in last year’s survey, a two-year increase in just one year. [1] Simply, the advisor work force is getting older and retirement is surely on the horizon for many. And while the same publication shows that advisors increasingly recognize the importance of succession planning, as evidenced by the “Importance Average” score of 8.8/10 in the 2017 Brokerage Report Card, the majority of advisors don’t have a succession plan which is concerning on several levels. [2][3]
So, how does an advisor start planning for their retirement? First, let’s acknowledge the obvious: all advisors will transition from their financial advisory practice one day. The question is will they be in control of their exit — or will fate and circumstance determine what happens to the business they have spent their lives building?
A couple of weeks ago, we were fortunate to have George Hartman, Canada’s best-known advisor practice management, valuation and transition planning expert, in over lunch to discuss:
- How succession is a process — not an event
- What advisors must do to assure their personal retirement lifestyle?
- How to create the legacy you deserve
With reference to his recent book, EXIT is NOT a Four Letter Word, George walked his attentive audience through a compelling presentation on how to succeed at succession starting with why an advisor should plan their exit. Based on his experience, any or all of the following points typically resonate with advisors when considering their exit strategy:
- You have spent a lifetime building your business
- Your business is likely your most valuable asset
- You expect the sale of your business to fund your retirement
- You want control over your exit
- You want someone to care for your clients; and
- Your succession will be your legacy.
So, what does a successful succession process look like? George’s advice is to follow these 6 steps (outlined in more detail in his book):
- Prepare financially
- Prepare emotionally
- Determine exit date
- Select best exit plan
- Choose your successor; and
- Implement
Interestingly, George’s research found that clients who own their own businesses tend to be better prepared for succession than advisors! While that finding seems counterintuitive, advisors’ reluctance to plan for their own succession tends to be driven by one or more factors, including that most are having too much fun, they are worried about client reactions or they don’t know what they would do if they didn’t come to work every day.
On that last point, readers of this blog will recall a reference to Lee Eisenberg’s 2007 bestseller entitled The Number several posts ago. I first heard about The Number after reading an interesting story about a former Raymond James executive who retired at 55 and moved to Italy to start a vacation cooking program. (Story Link: Mike Di Girolamo's Story). To quote Mike, “when I bought the book, I was looking for the dollar amount I needed to retire on comfortably. But maybe more importantly, the book gave me ideas on how to define retirement in addition to the financial aspects of retirement.” If you are an advisor contemplating retirement but not sure what you will do with your time, The Number would be a good place to start planning for the next phase.
And lastly, regardless of whether you are 5 or 25 years away from retirement, please ensure you have a business continuity agreement in place to protect the value of your business in the case of death or incapacitation. Virtually every advisor at the 53rd has one…
Interested in reading EXIT is NOT a Four Letter Word? You can order a copy here:
http://marketlogics.ca/store/
If you are interested in reading The Number, you can order a copy here: https://www.chapters.indigo.ca/en-ca/home/search/?keywords=the%20number%2C%20lee%20eisenberg
[1] Investment Executive - Advisors saw solid growth in AUM: Accessed August 9, 2017.
[2] The “Importance Average” tallies all the importance ratings in a given category and averages them together. It is intended to measure how important advisors think a report card category is to their business.
[3] http://www.fa-mag.com/news/advisors--retirement-requires-attention-of-advisory-firms-14363.html. Accessed August 10, 2017.
