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Blogs - A Better Practice
Secrets to a Successful Succession
Monday, November 19, 2012

We have a serious problem. There are not enough financial advisors being trained and coming through normal channels to replace all those advisors who want to retire and sell their practices. If you are a buyer, well things are about to get really good. There will be a lot, again, a lot of practices up for sale.

I have coached clients who are selling and purchasing practices and when it gets close to the ďendĒ for the outgoing advisor, that aging advisor has a serious crisis of identity and does not want to leave. The following are ten things you can do to make the transition smooth for the buyer and the seller.

  1. Seller, start looking in your area for younger advisors and start interviewing them, today. You will never find someone that is going to do things exactly the way you do, but you can get close. This interview process should take a few months at least. You want to test their true colors and ask them the tough questions. Give them situations they need to solve and see how their brain works. Also ask to interview their staff.
  2. Seller, hire a practice broker. If you are not able to find a person in your area that will work for you, hire a professional. They are out there, yes, they take a piece, but it is well worth the delegation. You will not get what you think the practice is worth to you. I am sorry, but we as business owners have unrealistic expectations on what our businesses are worth.†
  3. Seller, DO NOT SELL TO AN INTERNAL PERSON IF THEY CANNOT CLOSE BUSINESS. This is one of the biggest issues I see as a coach. You want to reward your staff or your junior advisor for their years of hard work, but if they cannot make rain, your practice will die after you leave.
  4. Seller, hire a transition coach. There are not a lot of us out there, but those of us who do this type of work can help you transition to a fulfilling lifestyle that will give your third chapter meaning and maybe even some extra means to pad your pocket.
  5. Buyer, pay a fair price; you will recoup your investment in 3 years. This is an investment in your growth and development of your whole career. Do not make the mistake many advisors do, donít be cheap.
  6. Buyer, meet with all the sellerís clients with the seller over the next 18 months. If you donít do this, you will lose a lot of the value of the purchased practice.
  7. Buyer, create a story on how working with you is a great option. You need to create a transition story and tell it better than you have ever told any story. Rehearse it with the seller over and over. Practice is going to be vital for this step. You are going to tell the story hundreds of times, every time it has to sound like the first time you have told it.
  8. Buyer, keep the staff you want, give a severance to those you do not need or who do not fit your culture. Do not axe the whole staff, it is not a nice thing to do and also looks like a hostile takeover. It is a business deal and you have to make sure you are maintaining profitability and the right culture, but, the clients of the seller need, yes need, to see some consistency.†
  9. Buyer, incentivize both teams to help with the transition. Bring in lunch weekly, chair massages, dinners if the team is working late. The more clients they help retain in the transition the better off you are for years to come.
  10. Buyer, ask the team, not the seller, who are the clients they would fire. This is a great time to fire some in your book too. You do not need to take on headache clients and it is a great excuse to shed the ones that are headaches for you too. This is going to be a lot of work for everyone involved; there will be a lot of headaches. Identify the clients that are headaches and leave them to another advisor.

(3) Comments
As a succession planning consultant to financial advisors with more than a decade of experience, I have to agree with almost every point the author makes, with the exception of #3. Actually, for advisors with smaller books of business I agree...but for larger businesses this kind of thinking can undermine your succession plan. I've heard this same misstatement from some of my advisor clients so I think it is worth mentioning.

First generation practices - you have to be able to sell to build your business and survive. However, when looking for a successor to continue building your legacy after you're gone, you often need a different skill set than the one that got you to where you are today. When you've built a large business, your successor doesn't have to be a great sales person, they have to be a great CEO. Granted, being able to sell doesn't hurt, but it is not the number one trait advisors should be looking for in a successor --- you need someone who can lead. Too many advisors want someone just like themselves to run their business, and they end up with someone who is just like them...a great sales person and terrible at running a business.

Posted by David G | Tuesday, November 20 2012 at 6:49PM ET
Another thought to consider regarding suggestion #10 is partial book sales. Before you fire a group of your "less desirable" clients, consider selling them to a junior advisor. Your "C" clients are another advisors "A" clients, which allows the seller to monetize a portion of their book and at the same time, know that their clients are going to receive even better service after the partial book sale.
Posted by David G | Tuesday, November 20 2012 at 7:08PM ET
When it comes time to meet with the clients after the sale, I would highly recommend starting with the smallest accounts first until you have honed your pitch. As the author mentions, buyer and seller will meet with clients hundreds of times together. A little practice goes a long way.

Many of the deals we have done here at Succession Resource Group have met with the biggest clients first because they wanted to make sure they retained the most important clients. However, even when you are prepared, the first few meetings can be difficult.

David Grau Jr. david.grau@successionresource.com

Posted by David G | Tuesday, November 20 2012 at 7:19PM ET
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