Here’s a bucket of cold water coming at all you RIA founders: You’re going to die.

It’s no secret. Your employees know it. Even worse, your clients know it. Still worse, your prospective clients know it, and it scares many of them to the point that they take their business elsewhere. Yet some 60% of advisors within 5 years of retirement don’t have any viable succession plan, according to 2012 Cerulli data.

And all of this is bad for everyone involved. Your clients signed up in the first place because you told them you were going to be there for them over the long term. But with no viable succession plan, what will happen to them once you’re unable or no longer want to continue serving as their advisor? In fact, being there for them is a core part of your fiduciary duty; it’s selfish not to take the necessary steps to ensure your firm’s long-term viability.

For your employees, no succession plan means that they have no idea what their future looks like. They can’t plan their careers or their lives. Everything depends on what happens to you.

It’s also horrible for your business and, by extension, your own financial well-being. As your existing clients age, they begin to gradually consume their assets. The only way to offset this natural consumption function is to add more, younger clients. But who in their right mind would want to get long-term financial services from a firm that is unlikely to be around for the long term?

Without viable succession plans, wealth managers will slowly drift off into oblivion -- willing partners in their own firms' demise. It's negligent behavior, and anything but benign.

Given these certain, bad outcomes, the obvious question is: Why have so few firms actually put a rational succession in plan in place?

WHY IT'S HARD

Well, for starters, succession planning is difficult.

Owners have to find a way to reach agreement with their employees, which generally requires that owners give up both economics and power over time. (The latter is much, much harder than the former.)

It is likewise impossible to find anything close to a perfect solution -- which for most advisors amounts to someone exactly like you who’ll come along and buy the business at the perfect time, when the market and the value of your firm is at its peak.

That’s not going to happen, and you probably realize that.

The biggest reason why most wealth management firms have no viable succession plan is because of what it means personally for their owners. It’s a passage that marks the end of one phase of life and forces owners to recognize their own mortality. And who even wants to contemplate that?

Ironically, a core part of any wealth manager’s job is to help their clients prepare for exactly this type of transition. You know it often takes skilled outside help for someone to work their way through the difficult emotions involved and accept that without a rational plan, there will be a very bad outcome for their spouses, children and broader legacy.

WHAT TO DO

So for the 60% out there who keep putting off what they know they must do, here are a few steps to consider:

1. Consider "what if" scenarios. To start, come up with a disaster recovery plan for your company and family should something unforeseen happen to you in the short term. Think of it as the "hit by a bus" strategy.

2. Make a plan. Then apply the same kind of financial planning to your business that you do to your clients’ lives. Consider your own timing and goals. Given these, what various alternatives are viable choices? Could you sell to your staff, to another RIA, or to a bank or a roll-up? In our experience, the most realistic and attractive option is to sell your firm to another wealth manager. In addition to unlocking the greatest amount of value, this kind of transaction creates the greatest level of certainty for both clients and employees that the business will continue on indefinitely.

3. Adjust emotionally. Start taking the steps to prepare yourself emotionally for a transition. Accept that all of these changes are going to be very hard -- and that when they’re complete, you’ll begin a new phase of your life. As part of your preparation, consider getting some executive coaching. With professional help you’ll probably make better decisions and be much happier with the outcome.

4. Understand your real options. Accept the idea that there’s no perfect solution. Every alternative is going to involve unattractive (and sometimes even downright ugly) tradeoffs. The key objective is to figure out which choice in the aggregate will be best for you.

Just remember: The worst option of all is for you to become a willing partner in your firm's demise. Don’t do it.

Yvonne Kanner is president and COO of Fiduciary Network, which provides funding to wealth management firms for internal transitions of equity ownership from one generation to the next, acquisitions of other advisory businesses and buyouts of retired or inactive shareholders.

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