Do you have a formal plan to prepare your successor and ensure the continuity of your financial practice? Or are you one of the 65% of business owners who haven’t planned that far ahead? This reluctance to plan for the future seems to be the antithesis of the advice most financial advisors would give their clients. Yet many advisors are guilty of ignoring this subject themselves.
Until you understand what prevents you from planning for your own future, you won’t be able to guide your clients through their resistance.
Interestingly, in spite of this unwillingness to plan, the vast majority (82%) of independent business owners and professionals indicate that they expect to retire in the future. Furthermore, they acknowledge the need to finance that retirement either through the proceeds of selling their businesses or collecting dividends from the businesses after their departure to ensure their future lifestyle. And that is precisely the reason why it is important to create a business succession plan in order to guarantee future financial security for you and your family.
Even if you have thought about succession planning, or have a preliminary transition plan in place, chances are that it is narrowly focused on only the technical issues involved in the process such as the legal transfer of ownership or tax issues.
Most people are reluctant to address the human side of a business transition. That side incorporates decisions about their future personal vision, long-term goals and profitability of the business or the process for selecting and training the successor.
What stops owners from making a succession plan? At the top of the list is the belief that there will be plenty of time to take care of things. In addition, many individuals avoid the subject because they have difficulty imagining themselves without the full-time responsibilities of their profession or can’t envision themselves moving into the next stage of their life.
Selecting a suitable successor is another major obstacle for many business owners. They may lack confidence in the abilities of a prospective successor, or they may fear choosing between family and other team members and want to avoid conflict.
Planning an effective transition in any field takes considerably more time to implement than people think. But, most advisors don’t realize that transition planning in the financial industry can be even more intricate. It requires an extremely structured approach in order to prepare for and execute the successful transfer of valued clients and their assets. So, even if your planned exit from your practice is 10 years away or longer, it is wise to start the process now.
There is also the possibility of an unplanned exit from the business. Even though you don’t expect a disaster to strike, you would no doubt want to make certain that your family and business are protected should tragedy occur.
Planning ahead will allow you to have a say in what the transition will look like. And everyone can sleep at night knowing there is some clarity around the future. This same premise applies to your clients and should be at the crux of your succession planning conversations with them.
Creating A Transition Plan
With the appropriate structures in place, you can help clients address the underlying potential obstacles in their businesses, both financial and psychological, and begin the process of creating an effective transition plan.
Asking them some tough questions regarding the vision for their legacies and future monetary needs is critical in order for them to move past their resistance to succession planning.
The types of questions you might need to address with them are: What does your business mean to you and your family? Who would you choose to succeed you in the business? How would this decision affect other family members working with you or other team members? What role would you play in the future of the business? How would you plan to spend your personal and professional time? What are your future financial needs in order to maintain your lifestyle?
Unfortunately, it is often difficult to have this type of honest conversation. In fact, you may find that your clients are so uncomfortable with this discussion that they will resist taking action in order to avoid the potential conflict that could result from any decision. This is precisely when your value as a financial advisor is the most essential.
By serving as a facilitator to potentially emotionally complicated conversations between family members, you can help clarify a future path for your clients. As a financial advisor you can determine the best strategies and tactics to guide them to achieve their succession planning goals. The next step would be to outline and implement a behavioral plan, taking the lead role to coordinate the efforts of other ancillary professionals such as attorneys, accountants and family business consultants.
So if you haven’t yet planned for your own succession, why take such a chance with your family’s future when there are some simple steps you can take to protect your equity and ensure you will have a choice around how and when you will exit? By facing your succession planning challenges and committing to develop a comprehensive transition plan this year, you will be taking a critical first step to investing in your future right now and, just as important, be a great role model for your clients.
This article was originally published On Wall Street.
