Every business owner knows that it is important to have a succession plan, but it is still very easy to procrastinate.
In fact, that is why Rick Rummage, chief executive and founder of The Rummage Group, an adviser training firm based in Herndon, Virginia, says that 80% of advisers don’t have one.
It’s a missed growth opportunity, he says.
“I’m not saying that it’s a be-all-end-all kind of thing. But clients like predictability and don’t like risk, and so especially when you’re talking about a small firm or an independent RIA, it can be a critical issue for both old and potential clients,” Rummage says.
David Grau Sr. president and founder of FP Transitions in Lake Oswego, Oregon, takes things further.
“Succession plans are about growth and sustainability. If you want to grow your business, a good succession plan is a key part of it,” Grau says.
“People tend to hold off on developing a succession plan because they equate it with planning to sell their business, and they aren’t planning to sell, so they don’t plan for succession,” he says.
“But succession planning is not about selling the business or selling your book of clients,” Grau says. “It’s about building the business so that it is something that lasts.”
The goal, whether it is selling the business or transitioning so that the seller can continue in some less demanding role at the firm — for example as a relationship manager for top clients or as a board member and shareholder — is to ensure that as the seller steps back from a full-time role, clients are comfortable with staying put.
But that goal can also be to build the firm by simply demonstrating that it is more than one person and is in fact an institution with a life of its own.
Whether the goal of a succession plan is to sell the firm eventually or develop younger advisers — perhaps even a family member — it will involve bringing in more clients.
That is because either the adviser is training younger ones to become senior partners or eventual owners or is trying to build up the firm’s revenue to improve the eventual sale price.
“If you want to grow a financial advisory business, having a good succession plan in place is a part of that process,” Gray says.
This story is part of a 30-30 series on smarter succession planning.
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