Nearly 82%¹ of advisors with a succession plan intend to pass their business on to someone currently working at their firm or to a family member. However, common succession plan challenges arise when advisors do not communicate their intentions to their chosen successor, only to later discover that the designated individual is not interested in running the business. In some cases, a succession plan is entirely absent, leading to frustration. You can avoid many of these succession plan challenges by reflecting on these key questions sooner rather than later.

Questions to Ask Yourself to Avoid Common Succession Plan Challenges

1. Does the designated successor in my succession plan know that I want them to take over my practice?

   This question may seem obvious, but many assume that the next generation (G2) will naturally want to buy the business built by the previous generation (G1). In reality, this assumption can be misguided, and G1s may find themselves scrambling for a contingency plan if their successor is uninterested.

2. Does the designated successor in my succession plan want to take over my practice?

   It might surprise you how many family members—such as children, nieces, nephews, or grandchildren—are not interested in taking over the business. They may prefer to remain advisors within the firm rather than stepping into a leadership role. It’s crucial to directly ask them if they are willing to take over; otherwise, you may end up needing a backup plan.

3. Is this succession plan what’s best for my clients?

   Consider the impact of the succession on your clients and whether their needs are being prioritized in the plan.

4. Does my successor feel ready to take over? If not, what are the gaps?

   After confirming someone is on board to be a successor, it is important to assess their readiness. Many successors report feeling unprepared for leadership, citing a lack of mentorship and professional development opportunities. In fact, only 35% of successors feel fully prepared³, and a third of G2s indicate they would consider leaving if there is no clear succession timeline². Thus, even if you have a successor in mind, inadequate planning could lead to losing them. The two areas where next-gen advisors seek more responsibility are strategic planning (49%) and managing firm finances (47%).³

5. What should I do if my planned successor declines to take over when I ask them?
   

   If you ask your designated successor and they do not respond positively, consider your options:

   1. Convince them to reconsider.

      While respecting their decision is ideal, if you believe they are undecided and there’s something you can change, you may want to make your case.

   2. Hire and train someone new for internal succession.
      

      This option is feasible if the original successor’s decline is not tied to broader issues within the business.

   3. Sell to an outside successor.

      There may be outside buyers interested in acquiring your business; just ensure that your practice is prepared for sale. If you need assistance in this process, don’t hesitate to reach out to us for guidance.

   4. Dissolve the business.

      If it becomes clear that there is no viable succession plan, this may be the only option. The downside to this option is that you spent years building something that has real, economic value and you essentially throw it away for free.

It’s not uncommon for advisors to let their practice slowly dwindle over time, especially the last few years of their career.  They may enjoy working part time, only with their top clients for a few extra years. However, doing this diminishes the value of the practice that they spent years building by forcing many clients to leave to find a longer-term solution for their own retirement years.

Preparing a succession plan three-to-five years from retirement (check out this framework) not only captures the most value for you as a business owner, but it is also the best thing for the clients and the advisor that will continue on with the relationships. Use these questions to help you clarify your intentions and those of your chosen successor and avoid some common succession plan challenges. If you find that you need to pursue an outside buyer, contact Focus Financial Network for assistance.

Sources:

1. https://smartasset.com/data-studies/financial-advisor-succession-planning-2022
2. https://www.planadviser.com/kestra-survey-looks-messy-succession-planning/#:~:text=Preparedness%20*%20Only%2025%25%20of%20G1s%20have,well%20cared%20for%20if%20they%20step%20away
3. https://www.advisorhub.com/succession-crisis-94-of-firm-owners-nearing-retirement-lack-comprehensive-plan/#:~:text=The%20study%20comes%20against%20the,had%20%E2%80%9Cplenty%20of%20time.%E2%80%9D

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