Succession Planning

An Effective Succession Plan Requires a Commitment to Actually Retire

The Cobbler’s Children Have No Shoes

By Kirt Walker

Mr. Walker is President and COO of Nationwide Financial. Visit

Much like the proverbial children who go without shoes because their shoemaking parents serve others first, there may be a parallel with advisors who counsel business owners on succession yet don’t have a plan for their own practice.

Advisors become experts in their field as their careers progress, giving their clients clarity in choice of responses across a spectrum of eventualities. They build skills and competencies that allow them to think through contingencies and implement plans that help their clients financially succeed in retirement, through disability and even in death.

Sometimes we call this skill by different names, like “providing financial freedom,” “building legacies” or “achieving security.” But, it usually comes down to one thing: advisors preserve a client’s choice during the experience of any one of a spectrum of life events.

So how can advisors be so passionate about clients having a business succession plan in place when they don’t develop one for their own situation? There is a correlation between urgency in planning and associating business succession planning as a retirement planning function. Over 70 percent of business owners polled in a recent Nationwide survey noted that they are not planning to retire, don’t know when they’ll retire or do not plan to retire for 11 years or more.

A majority (55 percent) of business owners who do not plan to retire report that they love their business too much to do so. Even more Boomers (68 percent) indicate this is a major reason for delaying retirement. The other reasons for postponing retirement include not feeling financially stable enough to retire (24 percent) and not trusting anyone else to run their business (17 percent).

Interestingly, the same survey noted that two in three business owners do not have a succession plan in place, with almost 40 percent of them lacking a clear understanding of their need for one. The trend indicates that if owners don’t see themselves retiring soon, they’re less likely to be ready to consider someone else at the helm.

Does your family rely on your income?

An advisor and the advisor’s family rely on the advisor’s ability to produce current, future and survivor income. As with other service professionals, the advisor’s clients are relying on the advisor to make sure that the client is responsibly cared for today and in the future even if the advisor becomes incapacitated or passes away.

To be clear, advisors have choices about how life’s eventualities are handled. If an advisor takes time to both plan and execute the plan, the advisor can preserve their choices, their family’s choices and even their client’s choices regardless of the life event. That’s probably why two of the most important business plans that advisors can implement are client care continuity plans and business succession or exit plans.

Who will serve your clients if something happens to you?

A client care continuity plan is a formal agreement that typically identifies the events that require another advisor to step in and serve the clients. The plan usually defines who that interim advisor is, the scope of services the advisor will provide, the duration and terms of the client takeover and whether the takeover will be temporary or made permanent, and so on. This type of continuity plan provides clients with seamless service if their advisor becomes incapacitated or even passes away. Advisors should tell their clients they’ve completed this type of planning – clients appreciate that the advisor has been thoughtful in all case scenarios. This plan type also protects the advisor’s client relationships should the advisor become temporarily incapacitated. Client care continuity plans are most effective when implemented in conjunction with a succession or exit plan and coordinating terms.

Do you plan to sell a client list or a full-service financial services practice?

An advisor as business owner would prefer the choice of selling a fully-formed, financial services practice over only being able to offer a client list to a potential buyer, regardless of the transition event of retirement, disability or death

On the other hand, a succession or exit plan is a formal agreement that is used to pre-design an advisor’s complete departure from his or her business. The plan typically identifies the events that trigger the advisor’s transition out of the business, the purchaser or purchasers, the purchase price, the appropriate valuation methodology, the payment terms for each triggering event, the funding requirements, whether assets or equity is being sold, and so on. This type of plan provides the advisor and the advisor’s family a path to monetize the advisor’s business in a way that creates and preserves choices for the selling advisor on price, terms and deal structure.

An advisor as business owner would prefer the choice of selling a fully-formed, financial services practice over only being able to offer a client list to a potential buyer, regardless of the transition event of retirement, disability or death.
To get started on succession or exit planning, an advisor should begin by evaluating the current business against the desired end state of the business.

An advisor who pre-plans his or her eventual transition can choose and court potential purchasers, privately solicit current or future offers, get a feel for the marketplace and develop relationships with potential purchasers, partner with other advisors and grow into a financial services planning firm, create a full succession path in and out for new and older advisors and grow the business that they’ll eventually sell. They can create choices for themselves.

While an advisor’s planning should cover the advisor’s current model, the advisor should also think about whether he or she wants to be limited to selling what’s in front of them today. There’s a full progression of business models that advisors may consider and different models present different succession or exit opportunities while the price per model varies greatly. For example, an advisor with a client list can expect significantly less than an advisor selling equity in an established multi-owner financial services firm.

The time to pre-plan any eventual transitions, including uncontrollable ones like illness or untimely death, is not when an advisor is in the middle of the transition. Business owners lose leverage, value of the business and protection for partners, employees, family and clients if they are trying to negotiate an outcome during a crisis. To help maximize and realize the value of the advisor’s current model, the advisor should pre-plan any eventual transitions – especially uncontrollable ones. Without this type of pre-planned transition, the advisor or his or her surviving family will be at the mercy of experienced buyers when the advisor is unable to work or ready to retire.

Business succession planning is one of the best ways that advisors can protect their client relationships and provide continuity of care. Planning is also one of the best ways that advisors can preserve their own choices and potentially build and sell their business for a premium in retirement, disability and even death.

Can you confidently answer the following questions?

• How will you earn income if you become unable to work?
• Will a family member be able to sell your business for you?
• Will you receive an amount that accurately reflects the value of your business?
• Will that amount provide enough income?
• If you pass away, who will your family contact to sell your business?
• How will your family know if they received a fair price for your life’s work?

The time is now, not as you prepare for retirement, to reserve your choices, design your own story and protect yourself, your family, and your clients for planned and unplanned life events. Resources are available to assist advisors with their own business succession planning. My desire is for the cobbler’s children to always have shoes. ◊