As Baby Boomer advisors age, business continuity and succession planning are on everyone’s radar. The average age of financial advisors in the United States exceeds 50, and, according to Cerulli and Associates, less than 12% of advisors are under the age of 35.
The number of financial advisors who die or become limited by medical issues while still practicing is reaching an all-time high. Cerulli estimates over a third of today’s advisors will exit the industry in the 2020s, whether planned or not. Consequently, this fact emphasizes the need for advisors to create their own succession plans and highlights the issues advisors who put off their business succession planning may face.
Shoemakers Fix Your Own Shoes
Advisors pride themselves in asking clients the hard questions about business continuity and succession. It is routine to ask clients:
• How long do you want to continue working?
• Do you plan on selling your business?
• Do you have someone in place who could lead the firm if you either live too long, die too soon, or become disabled?
A business owner’s largest asset is their business, which means succession planning is critical.
While advisors recognize the significance when discussing business continuity with their clients, they tend to overlook this fact for themselves. It is a classic case of “shoemaker fix your own shoes,” in which a personal succession plan is continuously placed on tomorrow’s to-do list.
Good business owners recognize putting off this planning can be detrimental to the growth of their companies. Unfortunately, good advisors are not always good businesspeople. Their advisory skills don’t always translate into an ability to lead and build organizations with the proper infrastructure to continue beyond their leadership.
The Goldilocks Dilemma
Determining the right time to exit a business can be similar to the Goldilocks dilemma.
However, in this situation, “just right” is impossible to gauge without hindsight, so your timing can either be too soon or too late. Since you can never know if the timing is just right, no matter what you choose, you’ll wonder if you would have been better off waiting. However, the wisest option is always to leave too soon. Leaving too late is disastrous but leaving too soon is the more difficult choice.
Use your succession planning to end with the beginning in mind and encourage yourself to leave too soon. Allow your firm to become even greater after you depart by putting the right people and systems in place. That allows the firm to grow with every successive generation of leadership.
I exited my company in 2019, when I thought it might have been too soon, and have watched how, even amid a pandemic, everyone has prospered. My successors grew the firm, despite COVID-19, nearly 25% in 2020. Our clients and employees love my successors and have shown how much they appreciate the transition.
Most succession plans focus on outcomes without considering identity, or who advisors see themselves as internally. This leads many to fear the succession planning process, which becomes the root cause of moving the subject to tomorrow’s to-do list. The best advisors find their identity in their businesses.
The thought of not being an advisor is anathema to them. As result, their greatest fear lies in the question: if I am not an advisor, what am I? This loss of identity is hard to process. I have a dear friend who sold his business to his hand-picked successor. While the external outcome was great, internally he was a mess.
Without an agency, he had lost his identity. This past year he started another agency because, in truth, he could not reidentify as anything other than an agent. As important as business continuity planning is, it is equally important to identify who you are beyond your business.
While there is no ideal business succession solution, the most important action you can take is to take action and take it off tomorrow’s to-do list — shoemakers, fix your own shoes!
Create a succession plan that allows your business to continue to prosper beyond you and remember you can exit too early or too late but waiting until the time is just right, is fool’s gold. Most of all, be fearless.
About the Author Donald White is a well-regarded speaker, having spoken widely on a variety of financial, as well as non-financial, topics in both industry and public forms. He has spoken at five MDRT annual meetings and is a qualifying and life MDRT member. Mr. White is also an author of three books- Building a Great Business and Legacy Planning and his most recent Always End With The Beginning In Mind. Donald lives in Stuart, Florida.