Quick quiz: What’s the best succession plan? The answer is … it depends on the structure of a firm.

Given the large number of solo practitioners and silo practices that make up the planning universe, succession planning is typically a difficult problem. Replacing a seasoned sailor with a fresh recruit is replete with challenges and can carry a significant risk.

Having control over business decisions, client management and scheduling is an attractive part of being a solo practitioner.

The danger with this arrangement is that if the boss becomes incapacitated or dies, everyone is left hanging. It isn’t easy to replace someone who is important in multiple ways to too many people.

What is the best answer? For me, it was to create a plug-and-play model.

HORRIBLE BOSS? THAT WAS ME!

Early in my planning career, I started as a solo practitioner and I loved it for all the obvious reasons. As my practice grew, I realized there were a lot of responsibilities that I abhorred that did not add value to my life or my clients’ well-being. The first employee I hired was an office manager, which showed me that I was, in fact, a horrible boss.

In my previous career working as a doctor in emergency medicine, my role was to tell the rest of the team what to do. With the fast and furious pace, “thank you” and “please” were afterthoughts and not often said. In my new world of bossing in my planning practice, I had to learn a different style. It took three office managers to figure that out.

Through those early years of self-discovery and working with a business coach, I had an epiphany. I did not like investment management and I loved financial planning. The day-in, day-out construction of portfolios, holding hands over market upheavals and explaining investment details that bored both me and most clients were not providing me any joy in my job. I decided to hire a dedicated investment manager so I could focus on what I loved doing.

CREATING A ‘HOLACRACY’

My conundrum became would I boss the investment manager around, or would he run the investment show as a peer? By choosing the latter, I made an impressive addition to my practice. The key in that hire was to make certain we had the same philosophy and goals from the beginning. Also, we moved to open book financials so that everyone, including the office manager, had their pulse on the business. We basically created a “holacracy,” although I didn’t know what that was at that time.

Since we are a planning-focused practice of which investment management is only a part of what we do, continued client growth increased the time dedicated to planning. We added another planner to pick up the increased workload. I focused on the estate planning, tax planning and client emergencies. Our new planner would provide projections, cash flow planning and insurance reviews. 

We made it clear to the clients that we work as a team and discussed how duties are allocated. Most importantly, we shared with the clients how we would make certain every member of the team knew what was going on in their life. In health care, teams make rounds on patients to keep the team apprised of their story and progress. At our practice, every Monday morning we have client rounds where we discuss the meetings of the previous week, client calls and upcoming meetings. This is how the client’s story stays fresh in everyone’s mind. Our clients appreciate this approach.

How do these processes translate to succession planning?

In building the practice, succession planning was important to me more from a client care standpoint. I can control when I want to retire, but can’t control when I die or become incapacitated. Since so many people depend on my work, I wouldn’t want to leave them in a lurch. Also, my supportive husband deserves something from the practice if I’m no longer around, and I want to optimize his resources to attract the next lucky woman.

As we built our holacracy, the succession plan became clear. We are each cross-trained in other duties so we have some redundancy in our skillset. If one of us dies or decides to move on to another career or organization, we have the capability to fill the holes in the short term. We strive to document our processes so others can more easily step in if needed.

THE OWNERSHIP QUESTION

What about ownership? Right now, I continue to be the sole owner of the firm. Since our pay structure is transparent, everyone is comfortable with the current arrangement. Since my only heir is my husband, my estate plan is in place to give the practice to my co-workers should both my husband and I die in a common accident. They deserve it. Should I die first, my co-workers will buy the firm at a fair price and pay my husband over a few years. I also have life insurance to provide the resources he will need.

Over time, my co-workers will become owners in the firm when they feel the time is right. I have no intention to sell to outside parties and our ages are staggered so we most likely won’t quit at the same time. I’m saving for the day I can no longer work just in case the practice has no value in the future — it is important to diversify since we cannot predict the future of practice values.

We have a program of rotating interns and plan to implement a three-year residency soon to educate the next generation of planners. Our hope is that we will develop “residents” who have been indoctrinated in our team culture, and the ideal personalities will want to stay with our practice. We will teach them the skills they need for when the time is right, and we will have them plug in and take our place.

Carolyn McClanahan, a CFP and M.D., is a Financial Planning contributing writer and director of financial planning at Life Planning Partners in Jacksonville, Fla.

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