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Friday August 30, 2019

Don’t Wait to Create a Succession Plan for Your Business: Advice and Best Practices from B. Riley Wealth Management

Are you a financial advisor considering retirement? Do you have a succession plan in place for your practice? If you don’t, you’re not alone; however, now is the time to sit down and create one.

Even if retirement isn’t on your radar, developing a long-term plan for your business should be. Succession planning is a critical aspect of managing your business, regardless of age or tenure. No one wants to consider that an unexpected illness, long-term disability or death might happen, but having a plan in place in the event this occurs is crucial – if not for you and your practice, at least for your clients’ financial wellbeing.

A recent study concluded that while the intention is there, 73% of financial advisors, CFP’s and dually registered FAs at firms managing between $50-$500 million in assets do not have a formal plan in place. Many of those surveyed were baby boomers within five years of retirement, which is surprising, considering that financial advisors are in the business of doing this kind of planning for others. The same study also revealed that about half of financial advisors at smaller firms, when asked, could not definitively identify a succession or retirement plan for the lead financial advisor in their practice.

If this is unsettling, it should be. As someone managing clients’ financial futures, it makes good business sense to establish a succession plan for anything unexpected, and your clients will benefit from it.

Why don’t financial advisors have succession plans in place?

Advisors put off succession planning for several reasons, among them is the assumption that there is always time down the road to put a plan in writing. Some also struggle with finding the right successor; specifically, finding a partner who is both competent enough to run a business and financially solvent enough to invest in it, if necessary.

Though most financial advisors would prefer to be succeeded by someone in their practice, some are concerned that clients may not be properly taken care of. Others believe their business goals aren’t well aligned with potential successors. Regardless, it’s clear that most financial advisors are procrastinating on ensuring the continuity of their businesses. So, what’s the solution?

Plan, and plan early.

The best time to consider a succession plan for your practice, is today. Start by putting together a written blueprint that is focused on the overall strategy, goals and objectives of your business. Identify a selection process for the next leader or name an interim leader should something unexpected happen that removes you from active participation in your business from your firm indefinitely.

Walker Hays, a Memphis-based financial advisor at B. Riley Wealth Management who specializes in 401(k) planning and private client wealth management, is in the process of growing his own practice and has mapped out a succession plan. Though he has no plans to retire anytime soon, the plan is a key part of his long-term business strategy. Finding and nurturing talent that shares the same vision for your business is key. This has been the focus for Hays in building out his team, and the reason he added  team members Amy Koch and Alex Snyder within the past five years. Hays also advises documenting a plan. “By putting it in writing, you and your team can create a formal, written contract to ensure smooth transition and continuity, whatever may occur,” he adds.

“Take your time and get started early,” Hays says, “because building a business strong enough to withstand a life event takes years.”

Hire the right people.

Though most financial advisors hope to hand off their practices internally to a more junior advisor, some look for candidates outside of their firms. Either way, it’s important to consider the advising style and culture fit of any potential hires. Do you want to hire someone with an advising style exactly like yours, or would you rather consider someone with a different demeanor? Hays thinks it’s advantageous to pursue employees whose style is different from your own with a focus on diversity, as it allows teams to specialize.

That’s contingent upon finding the right people, of course, and it’s important that they actually know the business. For example, Amy Koch, who joined Hays’s group in 2014, had worked in the retirement plan space throughout her career. Hays and Koch became acquainted while Koch was a relationship manager for a large recordkeeper, helping Hays service their mutual clients. “She was good, my clients loved her, and she was personable. More than that, she had a lot of experience in corporate retirement plans, and thus was able to come onboard and learn quickly,” Hays says.

Koch is good at business development, and things grew so quickly upon her arrival that Hays soon realized he needed another team member. Through word of mouth and recommendations, Hays and Koch became acquainted with Alex Snyder, who had previously worked in the institutional bond business, in 2018. “Alex has a financial mind and a personality, and is really great with people,” Hays says.

Snyder and Koch both presented with the required sales experience and financial knowledge, but maybe more importantly,  ranked high on the emotional intelligence scale. They’re skilled at working with people who are experiencing a range of emotions around their finances, which is ultimately why Hays hired them.

Build out a multi-generational office.

Inevitably, as advisors progress through their careers, their book of business starts to decrease as clients pass away, get divorced, or remarry. It can become difficult for a seasoned advisor to draw business from clients like millennials who are just starting to plan around their families, small businesses, or inheritances.

Hays adds, “Creating trust and establishing a relationship with a family’s children is of the utmost importance, because when an account is handed off to an advisor they have never met, who’s to say they will necessarily stay?” They may seek out a more junior advisor who is not as well-versed as someone more senior, because a senior advisor probably won’t be around for the duration of the relationship.

That underscores the importance of developing a multi-generational practice. “It’s difficult to build a business as a junior advisor, but the further you progress within the business, the more leverage you have,” he adds. To that end, Hays says that adding two junior advisors to his team just made sense. “We are consistently building a client base of all ages.”

Snyder, who joined Hays and Koch about two years ago, adds, “Building a book with a multigenerational team is a concrete strategy because it’s sustainable. I’m now in a position where I know I’m going to learn and grow as part of practice, as opposed to suddenly losing the principal on a team where I haven’t had a chance to get to know any of my clients.”

Purchasing a book from a broker? Make sure you consider the details.

This is especially important, according to Koch, because brokers trying to sell their businesses will talk about their assets; however, if most of the clients in a book are nearing retirement, it may not be feasible for long-term continuity of a practice.

Hays plans to sell a majority percentage of his book to his team and be phased out over a period, so can still lend help to his team. He adds that if he phases out gradually, it will help him avoid leaning heavily on his own savings and 401(k). Then, his team will repeat the process when it’s time for their own retirement. Ultimately, Hays says, it is a help to the firm overall, because if a broker becomes incapacitated and can no longer serve his clients, the book remains.

Hays also says that building out a team is about more than just succession planning; it’s also about business growth. A good advisor knows when to express the need for help as their book grows to avoid becoming overwhelmed. Simply adding advisors to your practice over time promotes growth by virtue of the fact that it expands the prospect pool of your practice. Remaining compliant can also be a complicated and time-consuming process, which underscores the importance of adding to your team when the time comes.