Picture this: over the span of your career, you’ve enjoyed helping people achieve financial success and security. You’ve helped parents fund their children’s education, and you’ve guided couples to retirement.
Now, it’s your turn to retire.
While a part of you will always miss supporting clients, you’re not worried. You know your firm is in good hands, as you created a succession plan well in advance. You received a practice valuation higher than most, all because you avoided these five costly succession planning mistakes.
What is Succession Planning?
Before you understand potential mistakes that can arise as you succession plan, you first need to understand what succession planning exactly is.
An Exit-Focused Approach
Succession planning is defined as a process that prepares successors to take over a business, without disrupting leadership, client service, and daily workflows.
In financial services, it has been considered a tactic to help you seamlessly exit your firm. But following the conventional definition may shortchange your practice’s valuation, payout, client retention, and competitive positioning.
A Dynamic Optimization Strategy
Succession planning is really a practice optimization strategy. Paying careful attention to your practice’s valuation and payout is important. However, this is a valuable opportunity to look beyond the numbers and support your team and clients as you transition. It sets the stage to resolve issues, improve operations, and find the right successor who can best serve your clients.
Succession Planning Process Mistakes
Viewing succession planning as simply an exit strategy means you may be leaving value on the table, which can be detrimental to the success of your firm after you retire. The actions you take will determine the future success of your team and clients. Of course, similar to how you’ve been supporting them over the years, you’ll continue to strive for the best. Lead the way by avoiding these five mistakes.
Mistake 1: Waiting
One of the biggest mistakes you can make in succession planning is waiting too long to start. The most successful advisors begin the process while their practice’s performance is at its peak (usually five to seven years before they intend to transition).
However, the earlier you start, the better. You can benefit from planning even 10 years in advance. It all depends on your desired exit date and level of preparedness.
Key Reminder
At this stage, you’re not just preparing to exit — you’re positioning yourself for future success. Early planning allows for a thorough valuation of your practice, uncovers opportunities to enhance your firm’s value, and provides the required runway to fine-tune your operations. Being proactive makes your business as attractive as possible when it’s time to transition.
Mistake 2: Only Focusing on the Payout
As you plan your succession, it can be easy to focus mainly on financial compensation. But this is a critical error that pulls your attention away from considering one of the most important elements: who will lead your firm and manage its finances when you’re gone?
Interview Questions to Help You Find the Right Successor
Make sure the numbers don’t distract you from finding the right successor. This will be one of the most impactful decisions you make during the process. Not everyone will make a good leader for your firm.
As you interview potential successors, ask yourself these sets of questions.
Questions to Determine a Cultural Fit:
- What is your ideal workplace culture?
- In a workplace environment, what do you need to succeed?
- How do you prefer to communicate and collaborate with teammates?
- What values and beliefs are important to you?
- What types of clients have you supported?
Questions to Determine Past Performance:
- Which benchmarks do you use to evaluate success? Why?
- How do you incorporate risk-adjusted measures?
- How do you evaluate and manage downside risk versus upside potential?
- What is your track record in supporting clients during market volatility or downturns?
- How do you determine when to advise an exit for an underperforming position or strategy?
- What systems do you have in place for monitoring performance in real-time?
Questions to Determine Their Financial Planning Approach:
- How do you determine the right mix of equities, fixed income, and alternatives for different client profiles?
- How do you explain suggestions to clients in a way that builds trust?
- How do you translate complex themes into practical advice for clients?
- Do you make tactical shifts based on market conditions, or do you prefer a long-term, strategic allocation with disciplined rebalancing? How do you help clients remain comfortable with that approach during volatility?
- How do you communicate the benefits (and potential limits) of diversification to clients?
- Which platforms or technology do you use for strategy optimization, analytics, and reporting? How do these tools enhance the advice and service your clients receive?
- How do you stay updated on new products, market research, and emerging strategies?
- How do you decide which innovations are appropriate to bring into clients’ financial plans?
Mistake 3: Planning Alone
Succession planning is not a solo process. We recommend that you tap into the expertise of your colleagues and network. Get feedback from those you trust.
But most importantly, collaborate with your team. Including your team in the process is how you improve operations and solidify roles and responsibilities, ultimately leading to improved client service. Identifying and resolving these details now means you and your team will feel more confident when you retire.
Key Reminder
Timing is key. Make sure to not bring them in too early, as it could cause excess confusion. On the flip side, if you loop them in too late, you can sacrifice trust and their adaptability to change.
An ideal time to collaborate with your team is when you’re ready to strategize roles and operations, which you can do through regular meetings and feedback sessions. Closely listen to your team’s concerns and aspirations, and include these details in your succession plan. For instance, if someone is aiming for a promotion or new certificate, clearly communicate how you’ll help them achieve this before or after you leave.
Mistake 4: Excluding Your Clients
We’ve mentioned collaborating with trusted colleagues and financial professionals in your network. We’ve encouraged you to include your team. But you also need to be transparent with your clients.
Working with clients for over 20 years means you’ve built thorough levels of trust and understanding. You have been their go-to source for finances, someone they depend on for guidance during challenging times. You know the ins and outs of their financial lives, and perhaps even slices of their personal lives.
This dynamic creates meaningful, genuine relationships, so it only makes sense that your clients will be impacted upon your exit.
How to Execute Your Client Communication Strategy
Your goal is to make a communication strategy that makes your clients feel supported throughout every stage of your succession plan. They should feel as taken care of as the day they were onboarded.
Your communication strategy should include:
- Regular updates, either in-person or virtually. Announce that you plan to retire, when your desired retirement date is, and any changes that will come in between.
- Introduce clients to your successor through meetings, webinars, or Q&A sessions.
- Detailed timelines. Whether verbally or visually, give your clients a high-level overview of when the new successor will be joining and what the transition will look like.
Mistake 5: Hyper-focusing on the Deal Terms
When planning your succession, it can be easy to focus on the specifics of your deal terms and structure. However, only concentrating on these details means you may place less emphasis on high-level objectives.
We recommend always defining the “why” behind each term. Ask yourself: what outcomes truly matter for your practice, clients, and team? Evaluating the broader impact of your succession plan supports client retention, maintains team stability, and fosters long-term growth for your business after you retire.
Recap: Succession Planning Do’s and Don’ts
Remember: succession planning isn’t just a way to determine your exit strategy — it optimizes your practice for growth and long-term success.
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When you’re ready, we’re here to help you in your succession planning and practice valuation process. Until then, we’re wishing you and your clients continued success.