Continuity and Succession Planning Process

 

Why?

Succession Planning, with the possible exceptions of robo-advisor, bitcoin and the DOL rule, dominates the news in the advisory press. There are basically two ways in which to monetize the business that you have spent your entire career building, externally or internally. Externally, you can sell you firm or practice to a buyer outside your firm. If you are aligned with a broker dealer, you can even sell it outside your broker dealer. To sell your firm internally, and do it right, you need a written Continuity and Succession Plan and you have to find a suitable successor. The primary difference between an internal sale and an external sale can be summed up in one word; control. The internal  plan allows you to control the terms, the timing, and the price in a way that an external sale can rarely do.

Here is an Example:

Our client was a healthy 64-year old advisor with a strong business producing almost $3 million a year in revenue. He had 25 employees, but he was so integral to the success of the business that clients began to worry. We created a plan and inserted two young advisors into the plan; one who was a strong producer, the other a talented business manager and portfolio manager.

Fast forward two years. Our client goes to South America to help build schools for needy children in the mountains and contracted an exotic disease. For the next 7 months, he worked about one-half day, every two or three weeks. He literally would have lost the business had he not had a plan to instruct staff and the people to carry it out. The plan took care of the business and the people who he cared about; staff and clients alike.

The point here is that succession is simply the conclusion should the plans for continuity become permanent.

 

The MPI Continuity and Succession Process

Our Continuity and Succession Planning Process, developed over the past two decades, is designed to give you, the advisor-owner maximum control over all of the elements of the Plan, as well as to identify and vet candidates for an internal successor who you will feel you can trust with your clients, your staff, and the future of your firm.

 Step 1: Data Collection, (Simultaneous with Step 2)

We will collect appropriate financial data to complete a valuation on your firm. This is the basis for the Value Proposition, which comes later. Understanding where your firm is today is critical to helping you determine the best way to distribute it and to be compensated fairly. We use our own Practice Management Questionnaire, a Position Paper on where assets are invested, and your P&L statement. Why is the Position Paper important? Because we want to attract successors who can easily be convinced to align with your approach to investing.

Step 2: Answering the Critical Questions

The concept of a change in relationship with your clients is perhaps the most difficult paradigm shift you will ever experience in your career. Going from trusted advisor to retired advisor should not be taken lightly and we spend a great deal of time before and during the Process to help you come to grips with this reality. The reason that many advisors choose the internal sale option is in an attempt to soften the emotional effect of this change. Some of the questions you will tackle include:

·         When, if ever, do you want to completely retire?

·         How many hours a week do you want to work leading up to complete retirement?

·         What do you consider the perfect profile of a successor?

·         Do you have someone currently who could be the successor?

·         When do you want to begin transferring equity, and how?

·         How stable is your firm?

·         What is your Value Proposition to clients?

·         What is your Value Proposition to a potential successor?

·         How do you plan to train your successor?

·         What exactly would you like to see happen to your firm and clients and on what schedule? In   addition to a named successor, who else would you like to take care of in your firm, (staff members)?

These are just a few of the questions we will help you consider. The consideration of these questions will understandably scare the daylights out of a lot of advisors. However, it is critical to work through them. We are fully aware and empathetic to the emotions the questions can produce and are here to help you work through them. It is our position that if you are not able to tackle these, you are not ready to find a successor. A strong candidate for a successor, (and why consider a weak candidate?), will not join you unless you have a good handle on these. Together, we endeavor to help you get answers to these and other questions before we develop a Plan.

Step 3: Developing the Plan

The development of the Plan is an exercise in not only continuity and succession, but also in growth. Firms with a defined Continuity and Succession Plan find it easier to recruit advisors and also to bring on more significant clients. Clients want to know that the firm will be there when they are ready to retire, not when you are. This is the Step in which we develop a Plan that fits your criteria for how you want to your firm assets and clients to be passed to the next generation of your firm, how and when you wish to retire, how your book of relationships and assets will be valued, and how you wish to be compensated. The Plan indicated how a successor will be given the chance to buy in, (never give equity away), and who else in the firm will be favored. Perhaps for example, you wish to protect a long-time employee’s job. Perhaps you want to save room for a younger child who is not ready to take over yet. When the plan is completed, deliverables will include:

·         A comprehensive plan for continuity and succession to include all of the employees that you wish.

·         Design a plan that gives you the ability to get the full value of the firm before it is exposed to the uncertainty of handing it to the next generation. At the same time, you will be able to experience financial advantage from the firm for years to come.

·         A model for future generations of successors.

·         Create comp plans for the future “equity team” that will allow them to earn equity while maintaining your controlling interest until you are ready to relinquish it.

·         Create a plan for the future management of the firm consistent with your wishes

·         Create a plan to train the successors

·         Indicate the provisions that need to be included in any legal documents

·         Jibe the plans with your overall business plans and objectives.

·         Assist you in communicating the plans, and if necessary, “selling” them to those affected. (We can also help you design something to release to clients and prospects)

Step 4: Finding the Successor

To surface, vet, and onboard a successor, we employ a customized version of The Empathetic Buyer™ Process. Review it under the OUR PROCESS tab of this website.

Final Thought

Many advisors put off this process because they fear losing control of their firm and even their lifestyle. Most advisors we work with do not plan to retire right away. They begin with a plan to protect the firm, staff, and clients from an untimely accident or illness that takes them out temporarily. The plan also includes what would happen if the accident or illness is fatal. The development and installation of the plan generates ancillary benefits. It tends to identify pressure points, increases staff accountability, and helps a firm run more efficiently and profitably. Finally, it aids in the acquisition of affluent clients and families whose members will outlive the Founder or senior advisors.

Keep in mind, a plan can be written to give the owner-advisor the ability to change it…right up to the point when he or she cannot.