More Than a Plan: Understanding the Succession “Journey”
Key Takeaways
02
Methodology
What Advisors Want in a Successor
What Best Describes Your Ideal Succession Plan?
Conclusion
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Why the Reluctance to Plan for Succession?
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Why a Succession Strategy is More Important Than a Succession Plan
Introduction
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“We have 52 company restaurants, making us the largest operator of the restaurant brand. So, we are right there next to the franchisee. We know exactly what it takes to run them and what it takes to build them and what the challenges are, be they labor or food or whatever.”
- Scott Deviney, CEO, Chicken Salad Chick
Few advisors would argue that their entrepreneurial clients should have a proper business succession plan in place – or else the value of what is likely their largest financial asset is unclear and potentially at risk. Much like the financial plans they encourage for clients, a business succession plan provides a road map to financial security for advisors and their families and assures continuity of service for clients. Most advisors, however, don’t have a succession plan, and many feel little urgency to work on one. The absence of succession plans among advisors and their lack of engagement in the succession planning process are two key results highlighting a study of advisors conducted recently by Wealth Management IQ.
Do You Have a Written Succession Plan for Your Retirement?
Succession Plans Among Advisors
(n=401)
Key Takeaway
1
The lack of succession plans among advisors can be inferred from responses to the survey question, “When are you planning to retire?” More than half of respondents, 51%, said that they were 11 or more years away from retirement, with the mean response being 15 years until retirement and the median, 13 years. Only 13% said they were planning to retire within the next five years. With retirement so far in the future for so many advisors, it’s easy to understand why succession planning is not a pressing priority. In fact, when asked what kept them from creating a succession plan, 10% said they were too young and too far from retirement and 18% said they have no plan to retire.
When Are You Planning to Retire?
Est. Mean = 15yr Est. Median = 13yr
2
While many advisors may not be ready for a formal succession plan, survey respondents were clear about what is important to them in a potential successor. Ninety-one percent of respondents considered a candidate’s ethical character to be either critical or very important, making it the top consideration. Other leading critical or very important factors were the best fit and match for current clients (87%) and the financial stability of the buyer (80%). To a somewhat lesser degree in importance were having a similar investment philosophy (68%), being the best match and cultural fit for employees (66%), deal price (65%), and having a similar business model and client base (62%).
Important Factors When Considering Succession Options
3
“It’s a fairly reasonable way to get new guests in your restaurant, partly because third-party delivery is bringing them there.”
The paucity of succession planning also may be attributed to advisor uncertainty and lack of education on the proper framework (or starting point) for developing a plan. One-third of advisors said they are not sure where to start, while 28% said that it is hard to find the right person to succeed them, and 23% said they were uncertain about the mechanics of structuring a deal. While most advisors do not have a succession plan, many have given thought to what their optimal succession plan would look like. For those, the ideal plan would involve an internal sale to a partner or employees (41%), while others (23%) see a gradual transition to another advisor affiliated with their broker-dealer or custodian, or an external sale to a third-party buyer with a multi-year transition (the choice of 12% of respondents.)
Among Next-Gen Advisors, 39% believe technology is a differentiating factor for their firm, versus just 25% of Established Advisors.
Ideal Succession Plan Survey Responses
Takeaways and Suggestions
Clearly, advisors feel little urgency about creating a succession plan, although most would probably agree that having one is a good idea. Developing a business continuity plan should be a priority whether an advisor develops a succession plan or not. Once completed, a business continuity plan can provide a natural segue to a succession plan. In developing either a business continuity plan or a succession plan, advisors have many resources upon which to draw. Broker-dealers and custodians can be very helpful in providing the assistance advisors need to develop either plan. They also can be helpful in making in-network connections to advisors who may be suitable partners for plans once they are developed. Advisors should view broker-dealer and custodian events as opportunities to talk informally with other advisors about business continuity and succession. Networking with other advisors to learn about their experiences and views in these areas, even in the absence of doing any definitive planning, is informative and can establish helpful connections for the future.
conclusion
Methodology, data collection and analysis by WealthManagement.com and Informa Engage. Methodology conforms to accepted marketing research methods, practices and procedures.
OVERVIEW
METHODOLOGY
RESPONSE MOTIVATION
Beginning March 24, 2023, WealthManagement.com emailed active users with invitations to participate in an online survey. By April 10, 2023, WealthManagement.com had received 457 completed responses.
To encourage prompt response and increase the response rate overall, email invitations and survey materials were branded with the WealthManagement.com logo to capitalize on user affinity. The first 100 respondents received a $10 Starbucks gift card. All other respondents entered a drawing for one of four $100 Starbucks gift cards.
practices and procedures.
received 457 completed responses.
to capitalize on user affinity. The first 100 respondents received a $10 Starbucks gift card. All other respondents entered a drawing for one of four $100 Starbucks gift cards.
Resources
Succession Planning 2023: Who Has a Plan?
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