Why Financial Advisors Struggle with Succession Planning

by James Bode James Bode | December 13, 2023

We know from experience in working with business owners that planning for succession is something that tends to be put on the back burner

We also know — from personal experience and from working with financial advisors — that many people in our field don’t do it either. 

We don’t plan for our eventual succession even though we tell our clients to do so, and even though we help our clients with thinking through and putting into place the vehicles for their succession. 

So, what is it that keeps us from doing what we know is important?


The Difference Between Business Continuity and Succession Planning

Before we get in too deep, it’s important to discern between a business continuity plan and a business succession plan. 

A business continuity plan allows your business to continue because of some unforeseen catastrophic event, like if you and your partner are in a plane crash, but the business can continue the next day without skipping a beat. 

A business succession plan allows for the considered transition of your business, perhaps because of your retirement, allowing you to work alongside the new owner for a period to allow for a seamless transition. 

As part of our continuity planning, my partner Ben and I have a buy-sell plan in place, funded with life insurance. We have separate policies on both of our lives, owned by the business. The intent is that the proceeds of the policy are used to purchase the business and payout to the deceased partner’s estate. 

In a difficult time (we hope our families will be grieving our loss!) it keeps the family from having to make a tough decision regarding what to do with the business. The buy-sell agreement keeps the successor partner from having to scramble to find cash to pay the deceased partner’s estate. It just cleans up the whole process and makes it a smoother transaction in a difficult time. 

But that’s still not a succession plan; it’s just an emergency plan in case of a catastrophic loss.

Unfortunately, many people in our field collapse the two when it comes to planning.

As humans we tend to think about succession and business continuity in the same vein, and overcome with emotion, we push it to the back of our minds. The fact of the matter is that you need both. 

If you have done nothing, start with a business continuity plan to take care of the “worst-case scenario.” Once you have a business continuity plan, move on to planning for succession


Why Is Succession Planning So Difficult for Financial Advisors? 

We don’t plan for succession for the same reason that many clients are reluctant to plan for the future. We avoid thinking about the possibility of not being here someday. It’s difficult, and it’s uncomfortable to think about. 

Avoidance comes in many different shapes and sizes; we all have our “reasons.” A big reason more advisors don’t plan for succession is that they think they’re invincible. The younger you are, the more likely you are to think like this. 

You think you aren’t going to age, you’ll never retire, you’ll never want to slow down. You think you’ll never get sick, and you think you won’t die anytime soon. You think, “It’s never going to happen to me, I’m young, I’m healthy.” This line of thinking immediately deprioritizes the issue of planning for succession. 

Another reason is that advisors get stuck on the “who” question or some other question of transition mechanics. 

They think, “I don’t even know who I would want to sell my business to.” After they think about this question for a while, for many it seems easier to just avoid it. 

Next, they go from, “It’s not going to happen to me,” to a variety of other thoughts, such as “Who would I sell it to,” “How would that even happen,” and “Do I really need it?” to “Maybe it can wait” and inevitably the thought gets shelved for another time, or a better time, although there is no better time than now.


Stop Overcomplicating Your Succession Planning 

Nobody likes to think about the end — not the end of their life, the end of their business, or the end of their active leadership of the business. It’s simply an uncomfortable topic for most of us. We would do anything to not have to think about something uncomfortable. 

For many of us, and especially for business owners, the business itself becomes the biggest way to avoid the uncomfortable. 

We tell ourselves that planning for succession isn’t a top priority, because the top priority is running the business today! And we point to a long list of to-dos and strategic objectives, and people that need to be hired and trained, the next big transaction we are working on, the next big client who is finally ready to move, and, and, and … Work becomes how we procrastinate on the important, and how we avoid what we know deep down must be done.

I think some financial advisors tend to overcomplicate the issue of succession planning, which in a way justifies leaving it on the back burner. (“It’s too complicated! Where do I even begin?!”) 

The reality is that while, yes, finding the right buyer requires careful consideration, there are some simple things we could do while we are figuring out the perfect transition plan. 

To begin with, there may be someone already inside your firm who is well-suited to running the place should you not be able to do so (or want to). You could have an internal successor and not even have thought about that as an option. It could be an assistant, a junior advisor, or a critical operations team member. 

For smaller firms, a succession plan could even be handing over the client accounts to a custodian for reassignment. It may not be the optimal plan, but it’s still a plan. 

Ultimately, a business succession plan is nothing other than a retirement plan for your business


Successful Financial Advisors Nurture Clients Through Succession Planning

Imagine you’re working with a client who needs to retire. Well, you want to make sure they are ready. What does ready mean? Ready means that they have addressed their risk exposure as best as they can, and they have acquired sufficient savings to produce a passive revenue stream that they can tap into for income after they stop working. 

The same goes for a financial practice. You need to make sure that the business is ready. This means that it needs to be able to produce additional dollars without you.  This means that the practice needs to have structures and people in place who can run it without your involvement. 

This brings us to another reason why advisors don’t plan for succession. Getting your practice ready requires that you run a business like a business! 

You will need to have systems and processes in place, operations and training manuals, the right people in the right jobs, and doing the right things for your client (not to mention ways to assess and evaluate their performance). This, of course, is a lot of work. It’s much easier to be a one-man-band or one-woman-band than to do the work of running it like a business. 

Many advisors don’t plan for succession because they don’t trust another person to do as good a job as they do, or they think that their clients won’t be appropriately cared for after succession. 

This makes absolutely no sense! 

Would you leave your clients’ future — these people in whom you are so vested — to chance, or would you rather have a say in who gets to take care of them and their assets? 


The Key to Succession Planning for Financial Advisors: Just Do It

If you are an advisor and you are avoiding planning for succession, I can tell you that I know how that feels. We pretty much all start there. But for us, as our business has continued to grow, we have realized that we are now responsible for a lot of wealth, for many families. 

Our clients deserve to have a plan for the assets they entrust with us, and we feel obligated to provide one in return for their trust in us. Also, once you reach a particular asset volume, the SEC asks about your succession plan. It becomes a matter of compliance to have a plan in place for your clients’ assets. 

When our clients give us this much control over their financial wellbeing, with it comes a responsibility to steward them well. If you are still in avoidance about succession planning, it may be time to wake up and face the fact that you too, deserve a bright future and that your own wellbeing relies on how well you plan for the future of your practice. 

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

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