Successful Transitions: Getting It Right

Journal of Financial Planning: December 2015


Succession planning is a hot topic these days, as well it should be. We are experiencing a significant graying of the profession and many advisers are considering exit plans. But succession or exit planning should be a long-term process, not an “OMG, I’d better figure this out” moment.

Every financial planning practice has a life cycle; for many advisers it looks roughly like this: survival mode, “Midas” growth phase, first stumble, success, second stumble, sustainability/decline. Each of these phases is an opportunity for the business owner to evaluate the current situation and develop a strategy for moving forward. It may seem like an obvious process, but all too often it’s simply not addressed. Advisers bring their own styles and personalities to their business lives and those characteristics often inform how they run their businesses.

Strategic Considerations

Successful transitions require scenario planning and strategic analysis—looking where the firm has been and determining goals for the future. You may think that the biggest transition for a business-owner adviser is retiring from the business, but this is not necessarily the case.

Having worked with hundreds of advisers and practices over the years, I have seen that the most critical transition is from adviser/business owner to business leader. This means being able to look at the practice objectively, ask and answer the right questions, and formulate a strategic plan—whether it’s for business development, operations, marketing, or attracting next-generation advisers as a step in the process of the owner’s path to retirement.

Young advisers are emerging from academic financial planning programs, not from sales environments, as did their predecessors. Although these young advisers are not necessarily natural rainmakers, they are smart, technically proficient, and drawn to team environments where they can contribute, grow professionally, and earn a place on the ownership track.

In our strategy consulting work, my team and I have observed notable success in attracting and retaining next-generation advisers when:

  • A career path is clearly articulated
  • A clear role for the junior adviser exists in support of a well-defined client-service experience
  • The junior adviser is not living in constant “survivor” mode in an eat-what-you-kill compensation model

Forward-thinking larger firms are matching inexperienced advisers with senior advisers, where young advisers can be mentored and develop professional skills over a reasonable period of time, rather than simply throwing them into the deep end with fingers crossed that they can swim.

The fastest-growing, highest-margin advisory firms tend to have well-defined human capital strategies. This means things as basic as job descriptions, but also professional development plans and a path to partnership. As we see the financial advisory business mature, we find examples among the best-managed firms where they have modeled their practices after the accounting or legal professions in terms of entry-level roles, junior, senior, and partner-type career paths.

Numerous firms are taking this internal-succession approach, but the industry still has many smaller firms led by sole practitioners who are eager to sell their businesses and follow their clients into retirement. What many don’t realize is that the actual sale of a practice is a relatively simple transaction, but it can only happen satisfactorily as the culmination of several years of strategic preparation. Without this, there is no marketable value of the firm, and the owner is sorely disappointed in not being able to cash out as expected.

The Egoist and the Martyr

The current generation of owners/founders can generally be described as accidental entrepreneurs. Many started in sales roles and through industry changes found themselves operating independent financial advisory firms. Like most small business start-ups, to be successful, they had to wear many hats. They had to possess business development and technical skills as well as a strong customer service orientation in order to build successful firms.

When advisers look for the next generation to follow the same path they took, we find low rates of success. Many advisers struggle to find successors or develop homegrown successors because they aren’t equipped to recruit, train, or even manage others. Such advisers tend to fall into one of two categories—the egoist or the martyr.

The egoist, in his or her most extreme form, is the business founder who “knows” that he or she is the exclusive lifeblood of the business. Larger than life, the egoist is often beloved by clients as the trusted adviser who will forever be there for them. The egoist may have successfully grown the practice by being a consummate salesperson and bringing in talented administrative staff and skilled professionals to handle the requirements of an expanding client base when the demands were too much to manage single-handedly. Although willing to assign client relationship and financial planning responsibilities to junior professionals, the egoist does not provide them with opportunities to participate in the management of the firm. Instead, they remain skilled worker bees, effectively serving clients, but unable to grow professionally or develop an owner/executive mindset.

The martyr wears many hats and is unable to delegate. He or she has been totally dedicated to building the business and serving clients, works nights and weekends, eschews vacations, double-checks everything, is involved in every minor decision, and likely walks to the office in the snow, uphill both ways. The martyr may bring in junior professionals to work in the background, but rarely allows them to serve in client-facing roles. Martyrs may be overly concerned with remaining useful and view hands-on-everything management as a way to ensure their relevance. Overwhelmed with perceived demands, the martyr is unable to step back and think strategically about the business.

My team and I recently worked with a very successful founder who hired a couple of junior practitioners who functioned well in their respective silos. The firm had not brought on any new clients in several years, but market performance helped with growth. The founder developed some health issues and decided to sell the practice internally. He named a price, but neither of the younger advisers stepped up, because they had no confidence in their ability to take on the role of leader—not surprising as the founder never discussed ownership with them, nor had he prepared them to take over.

Outside buyers were willing to consider a lift-out of assets, but they had no need to bring on additional administrative or professional staff. The founder had high hopes for a significant liquidity event, but his expectations were misaligned with the actual value of the business.

In another example, we consulted with a very successful adviser who had lost four junior advisers over six years. A classic martyr, his view was that they didn’t work hard enough or “just didn’t get it.” The truth was, he left them to figure things out on their own, with no definable processes to follow and very little mentoring. He could attract young advisers to join his practice because he was very successful, but he had nothing to offer that would enable them to achieve a similar level of success.

When advisers turn their attention to the future and begin to consider exiting the business, the circumstances are directly influenced by their styles. The egoist sees the success and position achieved over the course of his career, wants to be rewarded for that, and anticipates a payday. The martyr has been focused on doing everything for so long, assumes that junior staff “doesn’t have what it takes,” and can’t acknowledge that he never gave them the career development support they deserved. Unfortunately, many such owners will die with their boots on, and will fail to honor the fiduciary commitment to clients to act in their best interest.

The Strategist

Forward-thinking advisers fall into a third category, the strategist.

The strategist, as a successful entrepreneur who has built a thriving practice, may share some characteristics of the egoist and the martyr, but benefits from a critical difference: he or she is able to view the firm as a business rather than an extension of self. Strategists, whether innately or through the experience of guiding the firm through its various life cycle phases, know that the success of the business will be built on strategic planning, recognition of emerging industry trends, and a willingness to develop systems and processes to propel the business forward.

Strategists tend to be successful because they are able to look at their business objectively and ask the right questions, including:

  • What are the long-term objectives for the business?
  • Is the culture of the firm conducive to the success of the business, the staff, and the clients?
  • Are there defined strategies and processes for:
    • Client intake
    • Client communications
    • Market segmentation
    • Relationship management
    • Financial planning
    • Investment management
    • Staff development, etc.
  • Are workflows in place to ensure maximum productivity and efficiency?
  • Is the firm attractive to next generation advisers as a place to build a career?
  • Does the firm function well independent of the owner?
  • Are the firm’s financials normalized, providing a clear picture of what is being sold?

When these questions have been addressed, the firm is well positioned for growth and for attracting and retaining the next generation of advisers.

Advisers who recognize the importance of addressing these questions have lots of resources available to them. Broker-dealers and other industry professionals are providing guidance and coaching on developing a sustainable, valuable business. Numerous industry studies and articles discuss best practices for building enterprise value, as well as benchmarking studies in which interested advisers can participate. FPA offers a number of resources and tools (see

If you are thinking about selling your practice in a few years and enjoying your retirement, now is the time to start planning. Those assume they can sell “as-is” when the time is right may, in reality, have a lot of catching up to do. Consider this your wake-up call.

Matt Lynch is the managing partner of Strategy & Resources LLC (​), a financial services consulting firm.


Go Team

Recent surveys conducted by Barron’s magazine indicate that more than 70 percent of affluent clients favor team-based planning, because it ensures that if one adviser retires or dies, other team members will still meet their needs.

Recent adviser surveys conducted by several firms show that team-based practices are the business model of choice for the advisory practice of the future, yet many adviser-owners who are preparing their practices for the future are still relatively small shops. It should be noted, though, that size is not necessarily a determinant of success.​


Succession Planning