Successful Succession Planning - What Does the Next Generation Want?

“Ultimately, your success is measured not by how well you run the business, but by how well the business runs without you.” 

John H. Brown

If you’re in this particular situation and are just starting the planning process, your first step should be to decide whether you would prefer to transition your business to a partner advisor (if you have a partnership), a junior associate you’ve trained (this might be one of your children or an employee) or sell it to an external party. Once you’ve determined your preference for this critical step, you can then begin developing a more detailed and formal succession plan. 

Advisors who have already been through the succession planning process will attest to the fact that there are many factors to consider, and that many of these should be implemented sooner than later. As a business owner, there are many things you should plan for when setting up your business that will facilitate an easier transition for your successor, as well as derive maximum financial value for your business. These would include:

1.   Outsourcing non-core services to key strategic partners.
2.   Delegating administrative functions to specific team member(s). 
3.   Systemizing your wealth management process, including your ongoing communication and investment management services so that a senior financial advisor or associate can execute it with your clients and prospects. 

2.     When is the right time to put a succession plan in place? 

Succession planning is not something to only consider when you’re approaching retirement. Instead, it should be part of your formal business plan. This is particularly true given your obligation to ensure your clients continue to receive advice and guidance in the event of your sudden illness, disability, death or other incidents that impair your ability to manage your clients. 

The rule of thumb when it comes to succession planning is that Advisors should start the formal planning process at least five to ten years prior to their preferred retirement or exit date. This timeline should give you sufficient time to plan and execute the necessary steps to exit your business in a timely, efficient and financially viable manner.

3.     Who would make a good candidate to take over the business?

Choosing a successor to take over your business can be a difficult decision. Should you consider one or more of your children who have expressed an interest in joining the business? Is it best to consider an existing employee or a third party? All of these considerations come with pros and cons. 

If you’re considering handing down your business to your children, then this conversation should ideally start when they’re teenagers. This will give them an opportunity to more formally explore the business as a potential career option. At this point, it’s also important for your children to think about why they’re interested in joining the business and in having a career as a financial advisor.

Your kids may want the challenge of taking over your business and becoming an entrepreneur. Others would instead prefer the option of simply being employees in the company with a regular pay cheque rather than having the burden of being the owner. It’s also possible they would want to inherit your legacy as a monetary value while pursuing their own career aspirations. As IPC Advisor, Kevin Dunphy often tells us, when thinking about your child as a successor, it’s important to ask: 

“Cheque or challenge… what does the next generation want?”

Kevin Dunphy, IPC Advisor

Are your children up for the challenge and interested in taking charge of your business? Do they have the passion and desire to drive it forward while taking care of the valued clients you’ve nurtured for years?

Your children should follow their own passions and dreams. If this leads to a role as a financial advisor, then great! If not, then that’s fine too. Regardless, it’s best to know their preferences and intentions well in advance. 

If your kids decide to enter the industry and become a financial advisor in whatever capacity, encourage them to get their initial work experience elsewhere after completing their formal education. This will provide them with an unbiased perspective on this career path while also giving them a fresh perspective that will add value if and when they’re ready to join your business. 

The dialogue with your next generation should always be open and honest. The sooner you start the conversation, the better positioned you will be to explore alternative options where necessary to determine who should succeed you in the business. 

Conversely, you may find yourself considering an employee or an external third party to be the ideal successor for the business. In these cases, it’s imperative both of you share the same values and beliefs. We will elaborate on these options in future blog posts.

Whichever route you choose to take, the ideal candidate needs to have the right mindset, skill set and experience to meet, and more importantly exceed your clients’ needs and expectations.

4.     How can I get started with this process?

Succession planning is about finding the right approach that will create a seamless transition to an appropriate successor while fully addressing the needs of the families and businesses you serve. Your succession plan also needs to protect and preserve the value and reputation your business has established. Here is a short list of the tactics to consider:

1.   Start now. Succession planning should start at least 5 to 10 years before you’re ready to leave the business. The sooner you start the better!
2.   Create a plan. Ensure you document the critical steps in this process with specific timelines and owners for each one. This is a living, breathing document that can evolve and transform over time as the business matures and your circumstances change.
3.   Identify a candidate(s). Consider all possible candidates, including your kids. In the case of the latter, ensure there is genuine interest that’s not solely motivated by a pay cheque but instead by the challenge and passion for this role and to be an entrepreneur.
4.   Put business systems in place now. The more the business can run without you, the more attractive it will be to a potential buyer or successor, making the transition that much easier.
5.   Increase the business’ equity value. Business owners should always be looking for ways to continuously improve the value of their business. Be bold and don’t be afraid to take calculated risks where necessary.

You can start the succession planning process by taking an inventory of what you’ve done to date and what you still need to do.  Remember that this is your legacy; your succession plan cannot be an afterthought. When in doubt, the ultimate guiding principle should always be to put the interests of your clients’ and their families first in any and all decisions that may impact their future.

Start the conversation today by reaching out to us to learn how we guide and support you in developing a succession plan that’s right for you and your business.