Succession is a delicate topic. People don’t like to talk about their own mortality. Family clients with businesses may doubt the next generation’s capabilities. Yet, leaving succession to chance can have dire consequences. Independent broker-dealers and RIAs have similar issues. Their need for succession planning is every bit as great. So how can advisors help their family clients with this critical need? By instituting pragmatic succession planning in their own businesses.
This Website Is For Financial Professionals Only
First, let’s start with what needs to be done. To make it fun, we’ll pattern this after David Letterman’s ‘Top Ten List.’
10. A succession plan must be written. Absolutely. Without question. For legal and umpteen other reasons.
9. It must be a formalized process. You can’t just designate Junior (or a junior partner) as a successor and be done with it.
8. There must be a jointly created Leadership Profile. What does a family business owner look for in next generation leadership? How do you, as an advisor, envision next gen leadership for your business?
7. Delineate position (job) descriptions and specifically outlined expectations for that position.
6. Outline a formalized evaluation process. This provides a measure against which to benchmark success.
5. Design a back-up/emergency plan. Anything can happen. At any time. You have to be prepared. You have to have a back-up plan, even for temporary illness.
4. Delineate a succession plan for all entities. For families, this entails designing succession plans for the business, for the family itself, and for the family office. Advisors have two of these entities…a business and a family.
3. Create an acceptable compensation plan. The entire family should be comfortable with the compensation for the new business head. Your entire team should be comfortable with your designated successor.
2. Jointly create a written, step-by-step process to facilitate the transition. A transition may not just indicate retirement. It often means someone has died, or is disabled, or is seriously--if not terminally--ill. Having a structure in place may not eliminate all hitches. But it will make the whole process a lot smoother. And much less painful.
1. Gather input and jointly create a workable governance system. Families should create this system together. Advisor partners should create this jointly with input from junior partners, associates, and staff members.
An advisory business is different than a family business because funds are required for junior partners to buy a stake. Some independent firms have developed lending programs
to facilitate buyouts. This is an opportunity to get creative. Maybe a stake-buying option could be arranged over a brief period of years as part of the partnership agreement. Advisors can also groom hand-picked successors, just as other businesses do. What other ways can you think of to fund the succession of your business?
For the next 10 Thursdays, we’ll take a closer look at each item on the list starting with #10. What would it take for you to step up and face the same difficult issues your clients face? Facing these issues takes courage. It also breeds greater authenticity.