Why So Little Success in Succession Planning?

Succession planning driving forces are clear to broker-dealers, RIA’s, advisors, and other stakeholders. An estimated $2.3 trillion of assets are under the management of advisors over 60 years old[i]. The process of succession planning seems fairly straightforward. Googling “succession planning for investment advisors,” returns over a quarter million hits addressing in great detail how to create a comprehensive succession plan. Identifying a successor, though appearing daunting, in reality typically involves a knowable subset of an advisor’s extended business network. The timing for executing a succession plan is either a matter of personal preference and/or external circumstances.

And yet, 60-70% of advisors still do not have a viable succession plan.[ii] Why?

The apparent barriers to this basic business practice are well-documented. Broker-dealers and RIA’s cite some very plausible reasons, rationalizations, justifications, and excuses why the percentage of advisors with successions plans is so abysmal. It must be unacceptable, however, for BDs and RIA’s to continue to pursue marginally-effective or incomplete approaches to solving what is arguably one of the greatest problems currently facing our industry.

Could it be that there is something about the process of succession planning that is currently unknown, which, if it became known, could create a breakthrough in the number of advisors who initiate and complete succession plans?

My academic background as an industrial engineer informs me continuously that virtually every task, including succession planning, is a sequence of: 1) initiation; 2) process; and 3) completion. Over twenty years in financial services, tempers such theory with the pragmatic realities of a day in the life of a financial advisor. However, what I’ve discovered is that a viable solution to the succession planning dilemma is possible at the intersection of process theory and asset management.

Stay with me. You may recall from 6th grade science class Newton’s First Law of Motion which says, an object at rest tends to remain at rest and an object in motion tends to remain in motion, until acted upon by an outside force. Regarding succession planning, something is certainly at rest and such static inertia must be overcome before any action is possible. In other words, before effective succession planning can happen, there must be some potent initiation effort that identifies and breaks down the true barriers to getting started.

While there is no singular, magic bullet solution, it appears that a well-designed succession plan initiation process, customized to a BDs unique characteristics and preferences may help overcome the natural friction preventing succession planning from moving forward.

Such a process requires 1) an objective understanding of the current state of succession planning at the firm; 2) identifying the specific challenges posed by succession planning for each major group of stakeholders; 3) understanding the true barriers to succession planning; 4) establishing motivators, support resources, and rewards; and 5) empowering internal influencers to facilitate advisors through the succession planning process from initiation through completion.

Interestingly, and even ironically, a well-conceived initiation program can be agnostic regarding the specific content of the written succession plan. This condition affords great flexibility and, therefore, a high level of accommodation. It is authentic advisor engagement that is the key.

So how do you get advisors authentically on board and how do you enable them to recognize and break through the barriers of static inertia?

Stay tuned.

[i] Cerulli [ii] Cerulli, Moss Adams