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Most advisors spend their lives creating a thriving independent business, which is why succession planning is unsettling, even during the best of times.
Which, of course, these are not.
But succession planning is not just a break-the-glass-in-case-of-emergency tool: It is always important, in all circumstances. It’s about building a business for the future, creating continuity for clients and employees, and paving the way for an intentional transition – while also preparing for the unexpected.
Reality checks require courage
RIAs on average are in their mid-50s, with many in their 60s and 70s – a high-risk category for the current pandemic, as well as the time of life when retirement plans begin to crystalize.
But even though roughly 40% of current advisors will retire in the next 10 years, many aren’t following their own financial-planning advice when it comes to succession. An E*TRADE Advisor Services survey found that only 27% of advisors would be prepared if they had to enact their succession plan today.1 Similarly, a survey by the Financial Planning Association (FPA) and Janus Henderson Investors found that only 11% of advisors had retirement plans in place for themselves.
Let’s flip the table.
Imagine you’re counseling a client in their mid-50s with no plans for retirement, no financial strategy for transitioning from income generation to retirement allocations, no designated heirs or long-term care plan. Would you tell them they’re in great shape?
Planning for the eventuality that we’ll one day step down takes guts – and as the current crisis underscores, it needs to be done. Rather than taking a gloomy view, though, think of succession planning less as a sunset and more as a way to protect your clients and prepare your business and legacy to endure.
Succession planning becomes client service
Advisors are in the business of trust. Why should a client continue to trust someone with their assets if there is no plan to protect their best interests even when that advisor is not available to serve them personally?
Financial services consultancy Aite Group notes that the way financial professionals navigate the coronavirus pandemic will live long in client memory and be reflected in their loyalty – or lack of it. Clients need to know that their goals are intact and their needs will be met even in the midst of historic volatility and uncertainty. As investors face this crisis, the need for financial advice grows. How are you communicating continuity, peace of mind, and competence to your clients in this remote environment?
A succession plan demonstrates to your clients that you’ve made sure their financial wellness is protected even if your firm goes through a transition. It’s more than just a part of your business continuity efforts – it’s a growth strategy. It demonstrates client-centricity and that your firm is poised to provide uninterrupted service, no matter what.
Communication boosts teamwork
As much as clients are looking for increased reassurance, your team members and staff are, too. FPA and Janus Henderson found that advisor team members worry when there’s no succession plan in place, with 96% perceiving a risk of not having a plan and 88% feeling a plan – or lack of one – meaningfully affects them.
Especially in a remote environment, your team needs to know how your business is set up to weather transitions, if their jobs will continue to exist, and whether they can grow within your firm. Include your team in planning, development, and problem solving. If anything, working remotely during unprecedented times underscores the need for increased communication with your team.
Make sure to include up-and-coming advisors in discovery meetings and day-to-day check-ins with clients. Give them the freedom to become a familiar face and voice – loop them in on video calls, emails, and online messaging. Take the lead by reaching out to them more often and initiating conversations about the future of the business. Don’t let mentorship or development fall by the wayside while everyone is working from home. Show your team that your firm is in it for the long haul – and they’re part of that plan.
Take action now
There’s no predicting the future, but that doesn’t obviate the need for preparation. Follow the advice you would give to your own clients: If not for yourself, make a succession plan for the best interests of your clients and team members. Communicating a plan provides reassurance and builds a solid foundation, especially in trying times.
Small businesses like RIAs are facing magnified pressures during the pandemic. Be encouraged that the difficult decisions you make regarding succession planning do much more than clarify how you will transition leadership. Your succession plan shows your clients and team members that that you’re not only capable of facing the increased risks of the current environment, but you’re able to lead them through to a more secure future.
Gabriel Garcia is managing director, advisor client experience for E*TRADE Advisor Services. He joined the firm in October 2019. As a firm believer in knowledge-sharing to help spur new ideas and collaboration within the advisory industry, Mr. Garcia is focused on driving our business forward.
1 E*TRADE Advisor Services, data collected March 10 to March 19, 2020, among a convenience sample of 225 independent registered investment advisors.
Read more articles by Gabriel Garcia
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
