There’s a quiet crisis brewing among financial advisors and it has nothing to do with finding assets or compression of fees. It involves something far more personal– succession planning.
Recent studies show:
- Over one third of financial advisors plan to leave the business within the next 10 years
- More than $2.3 trillion in assets are managed by financial advisors who are 60 or older
- Less than 25% of these advisors have any sort of succession plan
What’s even more mind-boggling is among advisors who do have a succession plan, only 39% cover their team’s transition as part of the plan. Most advisor teams are siloed for the most part when it comes to client coverage. This is a relationship business. Clients must feel comfortable with the successor advisor if the remaining team hopes to retain the assets, and the retiring advisor wants to maximize the payout on their book. This makes a client/team transition plan a critical component of succession planning.
Wirehouses and RIAs often handle succession planning differently. In most wirehouses, the retiring advisor must partner with another advisor in the complex. Upon retiring, they are paid out a percentage of revenue from their book over a five to six-year period. At a wirehouse, the retiring advisor’s income from their book depends on the remaining team’s ability to retain clients and grow assets.
In an RIA environment, occasionally a retiring RIA will agree to seller-finance the sale of their business over a period of several years. However, it’s more typical for the successor advisor to obtain financing to buy the book and put half down with half paid over time.
Regardless of whether you’re a retiring advisor at a wirehouse or an RIA looking to sell your business, a smooth transition to the successor advisor is essential to a solid succession plan. It communicates integrity to your clients and helps you leave behind a legacy of compassion and professionalism.
Because no one really likes change, a successful transition plan should be implemented in “6 distinct phases” over a two to three-year period prior to the retirement date. The transition should occur so gradually, that clients barely notice. By following the Retiring FA Transition Coaching System, both the client and the successor advisor have time to grow comfortable with each other before the retirement date.
Phase 1: Two Years from Retirement
Segment the book
The first step is to gain perfect clarity on exactly who’s who in the book by doing a comprehensive segmentation. I suggest advisors segment their book first by assets and revenue and then, factor in the intangibles necessary for a truly comprehensive segmentation. Consider things like:
- Do you enjoy working with them?
- Do they take your advice?
- Have they given you referrals in the past?
- What is their future revenue potential?
- Do they have COI potential?
- Are they on a fee-based platform?
Have a Notes section in your segmentation spreadsheet to record any personal details that the successor advisor might not be aware of. Your notes should include client likes, dislikes, hobbies, favorite sports teams and quirks, as well as the relationships they have with other clients. The more detailed your notes, the greater the opportunity for team members to establish common ground with clients.
Identify the clients you absolutely do not want to lose. These are the clients you want to pay particular attention to as you work through these transition phases.
Segmenting your book is also a great time to purge smaller or more difficult clients. Ideally, you want to work with as clean of a book as possible during this transition period.
This is also a great time to review the systems you have in place in your business. If you don’t have repeatable systems for key areas of your business, now is the time to build them. If you already have systems in place, evaluate them to be sure they’re working as effectively as possible. The more systematized your business is, the less change your clients will experience during the transition.
If this seems like an overwhelming task or you’re not sure where to begin, get our Free Quick-Start Guide, 9 Systems Every Advisor Needs to Be Successful.
Phase 2: Two Years from Retirement
In Phase 2, the primary objective is to introduce your successor advisor and gradually get clients comfortable with talking to both of you. The easiest way to accomplish this is during appointments. Target the clients you must keep first but begin at the bottom of that list. This gives you a chance to make adjustments as you experience different client reactions.
When you bring in another advisor, don’t be surprised if some clients immediately ask if you’re planning to retire. In this phase, you’ll want to answer in very general terms, something like, “It’s not happening tomorrow but you know it’s going to happen at some point.”
If the client is coming to the office, a simple way to start Phase 2 is to have the successor advisor pop in for a brief introduction. If you’re meeting with the client outside the office, it’s important to let them know ahead of time that you’re bringing another advisor with you. If they question you, simply explain that you’ve been working with another advisor and you want to introduce them.
Some clients may not like the idea of you bringing someone with you. In this case, go to the appointment alone but take the opportunity to explain to them that you’ve started working with another advisor and thought they should meet.
Plan to spend approximately a year in Phase 2. Remember, our objective is to transition clients slowly and painlessly to the successor advisor. If you meet with a client twice a year, bring the successor advisor to one of the appointments and do the other one by yourself. Also, when a client who’s met your successor calls with a question or problem, have your successor call them back with the answer. It’s not necessary to do this every time a client calls but try to follow this protocol at least a couple of times with each of your top clients while in Phase 2.
Phase 3: One Year from Retirement
Appointments Part II
Phase 3 is a natural result of implementing Phase 2 well. In this phase, the successor advisor accompanies you on most appointments and answers or returns roughly half of your incoming client calls.
Another key objective in Phase 3 is to work the successor advisor into your client contact schedule. For example, let’s say you talk to a client 6 times a year and meet with them twice annually. Unless there’s a conflict, you and your successor should be meet with clients together. Also, in this phase, the successor should make roughly half of the scheduled calls in your client contact schedule.
Phase 4: 6-12 Months from Retirement
Share Your Retirement News
By the time you reach Phase 4, clients should be comfortable dealing with your successor advisor on a regular basis. Now it’s time to share your exciting retirement news. Decide who needs to be told sooner rather than later, but it’s important to be cognizant of who knows who in your book. The last thing you want is for clients to hear about your retirement from someone other than you.
Plan on having this conversation with your A, B+ and B clients either in person or over the phone. Then, write a letter announcing your retirement and send it out to all your clients. And remember, everyone views the world through the lens of “how does this affect me” so be sure to outline what they can expect. Most firms are going to send out their own letter. It’s very important that clients receive your warm, engaging letter before the cold firm letter arrives.
Phase 5: Two Months from Retirement
Two to three months prior to your retirement date, it’s important that you host a retirement party for clients. This is much more for clients than it is for you. Good clients need an opportunity to say their good-byes and wish you well.
If your clients aren’t the party type, make a list of the ones you’d like to take out to dinner before you retire. It should be at a nice restaurant with a guest list that includes you, the client and your successor along with spouses. Good clients need some closure in their relationship with you so don’t skip Phase 5!
Phase 6: One Month from Retirement
In this final transition phase, have your successor make a list of clients they would like to meet together with you one more time before you leave. The objective of this final meeting is to cement the relationship between the client and your successor. Set these appointments immediately after the party for your final month before retirement.
A solid transition plan for your retirement takes time and planning. Be sure to give yourself enough time that you can make the transition as easy and painless as possible for everyone involved, especially the clients. Following this phased approach also gives you time to get used to the idea of retirement and feel comfortable that your clients will be taken care of once you’re gone. Your transition plan should be based on compassion, professionalism and integrity. After all, isn’t that the legacy you want to leave?
To ensure a seamless transition for you, your team and your clients, you need strong, repeatable systems in place in your business. Get our Free Quick-Start Guide, 9 Systems Every Advisor Needs to Be Successful.
 “Succession Planning for Financial Advisors,” Cuna Mutual Group, Accessed April 1, 2019, https://www.cunamutual.com/resource-library/insights/operations/succession-planning-for-financial-advisors.
 “Why Advisors are Failing to Plan for the Inevitable,” Janus Henderson Investors, Accessed April 1, 2019, https://en-us.janushenderson.com/advisor/succession/.