Key Elements of Succession Planning: Preparing Your Clients

by James Bode James Bode | January 17, 2024

Most financial advisors know that they need to have a succession plan in place – whether they follow through on it or not or leave it until it’s too late, that’s beside the point. But many financial advisors, even those who have a plan, aren’t clear about how important it is to prepare their clients for a successful transition. Having your plan figured out is the first step. You also need to make sure that your clients are on your side and supportive of your next move.

Not preparing your clients for your eventual departure has significant consequences for your practice, your income, your future, and your reputation. The simple fact is that clients vote with their feet. If they are not happy with you, or the fact that you are leaving your practice, or how you go, or to whom you entrust their money, they can leave and take their money with them. (And they do.)


Succession Planning Challenges for Small Financial Advisory Firms

The fact is, many RIAs are essentially ‘mom-and-pop’ shops, and by that, I mean that they are smaller businesses led by 1-3 people. When you’re that size, you may think that planning like a ‘big business’ doesn’t really apply to you. For example, some smaller outfits may not consider (or act on the fact) that having a team-based approach is necessary for ensuring the longevity of the business. Allowing your clients to call you directly may make you feel good about yourself, but it’s exhausting long-term, and from a business standpoint, it’s a weakness. Having in place a team, some formal structure and defined operational processes are all essential to preparing your clients for your eventual succession. 


The Client-Connection: Revenue, Retirement, and Valuation

Because your revenue stream is tied to clients staying. Your retirement is tied to your clients staying. And certainly, the valuation of the practice is tied to your clients staying. This is important both for you and for the eventual successor who acquires or inherits your business. I’m going to share with you some examples – from personal experience, and from advisors we know, so you can see how critical it is to prepare clients for your eventual succession.


Succession Planning in Action: The Beck Bode Experience

Several years ago, Beck Bode acquired a firm from an advisor who had done an incredible job of thinking through how he wanted to transition his practice. As he set out to find his successor, he developed clarity about what kind of buyer would take good care of his clients. His goal was to leave a strong legacy, to find a buyer that had similar values to him and his clients, and to find a buyer who would be interested in tending to his clients’ needs for many, many years to come. 

Even before he found the eventual buyers (us!) he started talking to his clients about the fact that a day would come when he would not be around to service their needs. He was honest and practical in his conversations with them. He would tell people that what he was trying to do was to save them the hassle of having to find another advisor. Think about it, would this make sense to a client, to tell them you’re trying to save them some work? Don’t clients have the option of finding their own advisor? They’re not required to stay with their advisor for the rest of their lives, are they? Obviously, clients have a choice. This advisor, though, knew his clients, and he had a hunch about how they would receive his intention.


Building Client Trust Through Thoughtful Succession Planning

Explain to your clients that it’s in their best interest for you to have a succession plan. In the four or five years leading up to the day that he met us, he shared in every one of his client meetings that at some point, one day, he would no longer be their advisor. He talked to them about their retirement, and he talked to them about his own retirement. In some sense, he and his clients planned for retirement together. There was no awkwardness about him leaving the practice someday. In fact, his clients were so involved in the story of the succession that when we met him and asked him for references, he had a list of clients ready to share with us: clients who would attest to his skillset, his experience, his character, and his commitment to them! 

It strikes me to this day how thoughtful he was about the whole thing. He knew his clients had the option of going wherever they wanted, and he also knew that his clients really enjoyed the processes he had set up, the services he offered, and the team he had assembled to meet their needs. He knew that if he took on the task of going out and finding a buyer that matched his clients’ values and needs, it would make for a much easier transition for his clients (and a better sale overall for him). He went as far as to ask me and Ben to take personality tests so that he could make sure our work style and our communication styles would match what his clients needed. 

We learned some things about ourselves in the process, and it also allowed us all to relax and create an amicable deal that allowed for everyone’s interests to be met and to create the best outcome for his clients. Since client retention is a big factor in any purchase and sale, this advisor was making sure that he could deliver on the highest possible probability of retention. We were equally engaged because we wanted his clients to stay so that we could maximize the return on our investment and deliver on our promise. 


The Role of Multi-Year Transition Plans 

Another key thing that this advisor did to ensure that his clients were happy was to build into our transition plan a multi-year engagement whereby he would stay on in a significantly reduced capacity, but still, a noticeable presence, to let them know that he wasn’t just dropping his clients and leaving. This gave us all the space to merge the two companies at a measured pace: it gave me and Ben time to meet his clients alongside him. He took the time to introduce us one-on-one to his clients and reassured them that we were the people he had been looking for all along. He championed us in a way that allowed his clients to believe in us. It helped spark a level of trust in us that we were then able to nurture as we developed our own relationships with this new client base. This has been a hugely successful experience for us, both on an interpersonal level, and financially. All the small touches and communications with his clients primed them for our collective success.


Avoiding Surprises: The Need for Continuity Planning

Now let’s look at another example. If there’s one thing we have learned over the years is that clients don’t like surprises, and no one likes to be left in the dark. What might come as a surprise you may ask? Well, a fire sale, for one. It’s not at all uncommon to be forced to sell a practice – perhaps resulting from an unexpected illness, death, disability, or some other unforeseen scenario. So even if you don’t have your succession plan in place yet, at the very least you should have a continuity plan that addresses what would happen the next day if you (and/or your business partners if you have any) were not able to run the company. No one goes into business anticipating that they will have to sell their practice at a moment’s notice and yet it happens to many people. 

Many clients own businesses – discuss their continuity planning with them and use the opportunity to talk about yours. A fire sale or a sudden departure is a scenario that clients worry about and rarely voice. They care about the continuity of your practice because their own future is tied to yours. Take a moment to take this in: clients care about their financial advisors’ well-being because it is directly linked to their own well-being. It’s important to acknowledge that as financial advisors we take on a huge responsibility when we agree to guide our clients’ financial lives. 


A Cautionary Tale of Delayed Succession Planning

Contrast our successful transition story with one of the unfortunately real alternate scenarios that are commonplace. An advisor we know left the succession plan for too long, didn’t have one until it became a necessity. A buyer had to be found at a moment’s notice. The departure had to be quick and came as a surprise to everyone, including the advisor. It was a mad scramble, incredibly stressful, and clients were calling left, right and center, asking questions. Because the successor was chosen in a hurry, sufficient thought couldn’t go into it and it became readily apparent that the successor was not a good fit. A lot of money was at stake, and the biggest concern was that all this money was going to walk. No one wants to be under this kind of pressure. 

You owe it to yourself and to your clients to figure out what you want to do with your business and to stay in strong communication about it. There are many lessons in this story, but one of them is: to start planning early and talk to your clients about it all the time.


Maximize Your Practice Value through Proactive Succession Planning

Ultimately, having a succession plan in place communicates that you are serious about your business. It tells clients that you take seriously the responsibility of their financial future. It tells future buyers that you are serious about your client relationships. All this structure and communication naturally enhances the value of your practice, so you can get top dollar for it when you are ready for sale – at a time you choose, not one that is chosen for you.

Preparing your clients for succession doesn’t have to mean that you are fading away. It means that you get to decide your future on your terms. You get to decide how and how long you will stay involved in your company. It means that you AND your clients now have a plan. And when the time comes for you to take the next step, you will find your clients will be cheering you on!

James Bode is Managing Partner at Beck Bode, a deliberately different wealth management firm with a unique view on investing, business and life.

Subscribe Now

Additional Reading