How to Implement a Client-Transition Program

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Since life has unexpected events that are out of your control, you should have a succession plan when you establish your practice. Everyone has a succession plan, whether they know it or not, but not every plan is a good one.

After my business partners and I sold our financial services business, Terra Financial, to GE Capital in 1998, we established Forum Financial Management in 2002.

More recently, as I passed through my 50s, I knew it was time to give some deep thought to my transition plan. I wasn't interested in selling my business to a third-party consolidator, which is one reason why we decided to create a new system within our organization.

A crash course on succession planning within the financial services industry

Traditional external succession plans have two main downfalls. They usually involve an abrupt cliff-like handoff that can create a chaotic atmosphere of change that often results in the loss of clients. They can also introduce what I call the “fourth constituency.”

All advisory firms have three constituencies. Thinking about it like an upside-down pyramid, the top layer is the firm's clients, the middle is the firm's staff and affiliated advisors, and the bottom is the firm's owners or partners. When you introduce a roll-up firm into the hierarchy, by definition you are obligating yourself to a fourth constituency. This can be hugely problematic. No matter how elegant the acquisition, this fourth constituency will have a say in things, which is bound to introduce a lot of unforeseen impositions that will take a toll on the firm.