Successful Succession: Insights from a Third-Generation Financial Advisory Firm

Examples of succession or continuity planning gone wrong are quite common, but it doesn’t have to be that way.​

Journal of Financial Planning: June 2020


Timothy Wyman, CFP®, J.D., is the managing partner at Center for Financial Planning Inc.® (​). He frequently speaks to organizations and businesses on financial planning topics and is a former member of the FPA Board of Directors.

JOIN THE DISCUSSION: Discuss this article with fellow FPA Members through FPA's Knowledge Circles​​​​. ​​​

Succession planning was a challenge well before the coronavirus hit. How will the coronavirus impact succession planning? Will plans be accelerated or delayed? While succession planning, like most things, is complicated by the current world health issue, owners of financial planning firms are some of the most resilient people I have ever been around. Not only are they concerned and caring for their own families, they are also concerned and caring for clients (sometimes hundreds of clients), as well as for their team members and their communities.

Earlier in my career I had the privilege of serving on the FPA National Board of Directors. One of my fellow board members was a highly successful planner who’d been in the business for 30 years. He’d been masterful at caring for his clients like they were members of his own family. For years he tried to bring in younger partners, but he never had any success. Sadly, when he retired, he had no other option but to simply close his doors, unable to receive any compensation for his life’s work. And, his clients were simply left to fend for themselves.

I also met a financial planner from Dallas who was a registered representative with a broker-dealer. After practicing for 10 years, he died in a tragic accident. With no continuity plan in place, his clients were simply reassigned to other reps and his family didn’t receive a penny.

These are real examples of succession or continuity planning gone wrong—and they are, unfortunately, quite common in our profession. I am here to tell you: it doesn’t have to be that way.

Correct Planning Equals Success

Imagine that you dedicated your career to the financial planning profession and served clients to the best of your trained abilities; you helped them fund their kids’ college, helped them retire successfully, and helped grow their net worth—all noble work. At retirement, you hand-selected who would care for your clients going forward, and you received fair compensation for your life’s work.

Or perhaps you built a firm. With the right plan in place, not only were clients well taken care of by professionals whom you trained and mentored, but you transitioned ownership to the next generation, establishing your legacy in a firm that continued beyond your years.

Speaking from first-hand experience, I can tell you that these types of succession plans can be achieved, with the correct planning.

In my more than 28 years of practice, I have seen these scenarios play out. I personally have had the privilege of being part of a well-thought-out succession plan (though by no means perfect) and have witnessed the tremendous benefits for my retired partners, clients, and our next generation of owners.

Exit Stage Left

Why are succession and continuity planning such a big deal? It’s simple. Yes, the profession is graying. We are all getting older, and one-third of advisers are expected to exit the business over the next 10 years, according to Cerulli. That means—look to your left, look to your right— one of you will not be practicing in 10 years. The topic is being addressed everywhere, articles, blog posts, podcasts, webinars, etc. Many consultants have suggested that succession planning is the No. 1 challenge facing advisers.

Moreover, the dollars at stake are significant in terms of the value of existing firms. If you’re like many independent advisers, your practice is by far your largest asset, but without a plan that value will be minimal at best, and at worst, lost.

If succession planning is so important, how are we doing as a profession? Apparently not very well. Certainly not as well as other professions such as healthcare, accounting, or law, where succession and/or continuity planning seems more entrenched. Seventy-three percent of advisers lack a formal plan, according to the 2018 study “The Succession Challenge by FPA and Janus Henderson Investors. That study also showed that although larger firms may be doing better than smaller firms, the number of successful succession plans is still low.

The harsh reality is that like most types of businesses, our profession is still in a phase where founders own the vast majority of firms, and an enormous percentage of advisory firms will not survive the founder’s retirement. There has been more talk about succession planning than real action. It remains to be seen how many firms actually transfer to the next generation, even with the current focus on the issue.

And, while the idea of succession planning is not complicated, the actual transition is anything but simple. The most recent book by Small Giants author Bo Burlingham is Finish Big: How Great Entrepreneurs Exit Their Companies on Top. After interviewing many business owners, he concludes that the transfer of leadership and ownership (i.e., succession planning) is one of the most difficult transitions that any business will face.

There are a variety of succession strategies you can pursue. The one we used in my firm worked well for us, but I’m certainly not advocating that our way is the only way. We do, however, have some practical experience that I will share that you may find useful, no matter where you are in your practice life cycle.

The Path Chosen

From my perspective, a successful succession plan achieves a triple win: a win for clients— who, as professionals, we have a responsibility to see that they are cared for; a win for retiring partners; and a win for the next generation of firm leaders.

Our firm chose the path of internal succession because we believe it provides the greatest opportunity to achieve this triple win. Internal succession plans take time and investment in developing people. Our internal succession planning started as long as 15 years ago.

It wasn’t always easy, but now with six G2 or G3 owners, it has been rewarding. Our three founders have all successfully retired (but still remain clients). They received considerable compensation for their years building a successful practice, and the clients they served for years have been well taken care of by advisers they trained and mentored.

Over the past 35 years, our firm has pursued a strategy of “tuck-ins” or “plug-ins,” which has been an important element of the successful transition from the founders. We continue to pursue this strategy, expanding our team with extremely qualified individuals who are aligned with our culture and philosophy that might lead to becoming G3 and G4 owners. To help develop these tuck-ins, more than 10 years ago we instituted systematic professional development planning, along with specific career tracks for all team members. Several of our current owners were early to mid-career tuck-ins, and I was a tuck-in 20 years ago; it was by far the best career decision I ever made. Lastly, recently we have added a near retirement tuck-in that will benefit the retiring adviser, her clients, and our future business.

Today, we are an ensemble business of approximately 30 team members with six current owners. We provide financial planning and investment management to the mass affluent and manage in excess of a billion dollars due to our focus on internal succession planning.

Thanks to the foundation laid by our founding owners, succession planning is simply part of our firm’s DNA, an element of our normal business thinking and operations. As second- and third-generation owners, we believe that we have a sustainable ownership structure and have shown the ability to solve the succession/continuity issue that many find challenging. Our success has been a matter of maintaining laser focus on creating the triple win. The journey hasn’t always been easy, and it requires a significant investment of time and money, but the effort and attention has been well worth it.