One major decision confronting advisers who are close to retirement is whether to appoint a successor or sell the firm.
As one might imagine, views are mixed as to which is the wiser choice.
David Bugen, former chairman of Regent Atlantic Capital of Morristown, New Jersey, doesn’t think that there is a right or wrong answer between succession and a sale.
“I don’t think one is better than the other,” says Bugen, who retired in 2015. “It’s a matter of how it’s implemented.”
The most important consideration is to provide continuity for clients.
“Well in advance of retirement, you should communicate and convey your plans for them,” Bugen says.
“You should have a well-thought-out transition plan,” he says. “The worst thing an adviser can do is not to have a business continuation plan.”
That shows disrespect for clients, Bugen says.
“You should establish a transition where clients can meet your replacement,” he says.
If a retiring adviser doesn’t think that there is someone at the firm who can continue the level of service that clients expect, he or she has an obligation to find someone from the outside, Bugen says.
That may mean a longer transition if the retiring adviser doesn’t already know someone interested in buying the firm.
And this should be communicated to clients, Bugen says.
“Clients have every right to know about your retirement plan,” he says.
Michael Dixon, a 65-year-old CPA and personal financial specialist at Your Planning Partners in Palm Beach Gardens, Florida, has a different take.
Selling a firm is just an informal succession plan, and it is usually the choice of advisers who don’t have deep relationships with clients and are merely managing investments, he says.
“Their succession plan is just whoever wants to pay them the most money,” Dixon says. “The clients we’ve seen who come out of the sale have no idea who is serving them.”
So that does amount to a succession plan, Dixon says.
“But it’s not about the client,” he says. “It’s just about the adviser selling the business.”
For advisers with a complete financial planning practice, “it’s definitely a strong part of the business model to have a structured succession plan,” Dixon says. “The exiting senior adviser starts to introduce the client to someone who will take over and give the same level of service.”
It is a more holistic relationship, with advisers becoming part of their clients’ families.
“You know the spouse and the children,” Dixon says. “You get to know the true client desires.”
Dan Weil’s work has appeared in The New York Times, The Wall Street Journal, Bloomberg, Institutional Investor and Tennis magazine.
This story is part of a 30-30 series on smarter succession planning.
