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An often overlooked potential successor

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Much has been written about succession planning, with the focus of the successor either being another financial planning firm or a younger planner within the firm.

The thought process here is that another firm of a similar planning and investment philosophy but also capital will buy out the owners of the firm and absorb their clients into their entity. Alternatively, younger staff member advisers can be groomed to run the business and over time purchase portions of the business as their compensation allows.

But there is an important third option: Wealthy clients who become career changers.

Many of us have seen this scenario in our offices: A client goes through the planning process, has a strong grasp on everything that the adviser is saying, has the technical knowledge down but can also have an empathetic conversation. They love the content and process that they have gone through and bring research to the adviser that is on par with what the adviser gives them.

They aren’t sure about their current career, so given what they have seen, express that they would be a great adviser.

Many times, the conversation ends there. But might this person also make a great potential successor?

Because they are a client, the adviser knows that their financial house is in order or is well on their way to being in order. The adviser already has an established relationship with the person, so know that they work well together.

The client may have substantial capital at their disposal, and the adviser will know what it looks like after having designed that financial situation. If a client has a desire to do the job and run a business, it could make sense for them to come and do it under the adviser’s umbrella.

The client will get all the needed skills, and the adviser knows that the person’s philosophy will align. With a few years of training, this person can buy the business and take it to the next level.

Advisers who go this route avoid having to court other firms and worrying about whether they can effectively serve clients. They also don’t have to worry about grooming internal candidates, hoping that they will stay and/or have the financial standing to commit to a buyout plan.

Although this could be a rare scenario, advisers may find it worthwhile to consider whether they have a client who could be the ideal successor.

This story is part of a 30-30 series on smarter succession planning.

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