Succession planning: Finding the next you

How do you replace the seemingly irreplaceable you?

Karl, a 40+ year industry veteran and partner at an RIA in Mississippi, found himself asking this question in early 2010. His practice was in a good place and he wanted to dedicate more time to his grandkids and other interests. He also knew he was missing prospecting opportunities with his current clients due to lack of time. “I didn’t want to go backwards in compensation, but I was okay with staying flat,” recalls Karl.

One step at a time

Acknowledging the need for someone to succeed you is the first step in the succession planning process. It’s often also the most difficult step, particularly for advisors who have spent their career building a business and nurturing client relationships. It can be gut wrenching to think of someone else sitting in your seat. Focusing on why you’re seeking a succession solution is critical. No matter how many years out it is, understanding how your ideal transition might unfold can help you mentally prepare for succession and the next phase of life. In Karl’s words, “You’ve got to be able to let go.”

The incumbent’s critical role

As the incumbent, your role in the firm evolves and expands during the succession process. You’re no longer “simply” an advisor and business owner. You must also recruit and mentor your successor. With previous new hires, these responsibilities may have fallen to someone else on the team. But due to the nature of advisor succession, you will play the biggest role in choosing and developing the person who will take over from you.

Knowing what to look for

Karl knew he’d have a match once he found someone with a complementary skill set and values that reflected his. In short, Karl was on a mission to find someone who could help diversify the team’s skills and clone its values. That approach was a great start because the best teams are often formed of individuals with complementary skill sets. The team’s strengths are deepened and the client experience is often enhanced. The different personalities and communication styles can put the team in the best position to connect with a multi-generational client base. Karl’s emphasis on shared values also reflected a recognition that values are arguably the most important ingredient for forming long-lasting partnerships. Potential successors can be taught many things, but values such as work ethic and client commitment are generally set early on in life. Karl planned to spend significant time getting to know any potential candidate in order to ensure that their values were aligned.

Give yourself time

Like many advisors, Karl started by looking for a match within his own firm. After all, an internal succession can offer the comfort of existing knowledge of the firm, its products and services and the existing client base. Luckily, Karl started looking for a successor early – before he really needed one. Generally, with time on your side, you increase the chances of long-term succession success. Because sometimes it simply takes a few tries to find the right person. There are many reasons why the seemingly ideal candidate might not work out. The person may turn out to lack some of the necessary business skills or leadership traits. The person may be too risk averse to become a successful business owner. For advisors starting to look for their successor, Karl suggests considering the following questions early on:

1. Which additional skill sets would benefit your existing clients and team?
2. Could anyone within your branch or firm potentially be a good successor for you?
3. What values do you believe your successor absolutely needs in order to ensure a successful transition – that is, the longevity of the firm you built?