Succession Planning: It’s A Marathon, Not A Sprint

The focus on financial advisory succession planning is at a fever pitch as many firms begin to think about the next generation of their business. From my experience, succession planning takes a long time and should not be rushed.

Our firm’s founder set course in 2012 with a goal of “Having the firm perpetuate past [his tenure] with the purpose of sustaining a business that will continue to serve clients for generations to come.”

Valley National Financial Advisors (VNFA), like many independent firms, was founded as a solo entrepreneurial business that grew over the decades to function as a collection of siloed advisory practices loosely collected under one name. Without a firm brand, shared client relationships or strategic firm-wide goals, the challenge to “perpetuate” that original vision was not going to be easy.

Our firm’s succession plan had to focus on more than coordinating a simple passing of the baton. It required strategy in four key areas: Equity succession with proper corporate governance, operational management, financial advisory/client succession and brand development.

Build an operations and management structure.

When I came on as COO in 2012 and was tasked with implementing a succession plan, our founder was not only the owner but also President, Chief Compliance Officer and managing the largest client practice. This was something that needed to be restructured in order to break down the siloed model and institute a business plan that includes working together and sharing resources under the supervision of a dedicated management team.

I hired people to manage underserved aspects of our operations, promoted peak performers to help serve clients and implemented new technologies (including modern CRM, portfolio reporting and rebalancing) to spark an evolution of our workplace culture. As a result, our advisors could spend more time with clients and on business development — not an overnight undertaking. Finding the right people, convincing the existing team of the positives of change, and the actual rollout of some of these initiatives all took time.

Establish client and advisory practice succession.

The main challenge for VNFA was figuring out how to develop next-generation advisors who senior advisors would trust to perpetuate their client relationships. Again, we took the long-term view and carefully built a desirable succession strategy. We began to recruit two new college graduates each year as part of our Entry Level Professional (ELP) program. These new employees would rotate through our advisory business and learn “our way” of working — from the ground up.

As these ELPs developed to take on some junior advisory work, existing junior advisors could be promoted to full-time advisory roles. In a matter of two years, we went from four full-time advisors to eight. Each newly promoted advisor was given a segment of clients to manage. The senior advisors took the time to integrate these individuals into their client service patterns until there was no question that clients were comfortable and confident in the succession. (This part actually happened faster than we anticipated.)

These transitions had a tremendous impact by increasing capacity and, thus, business development. This also shifted our culture to make room for shared goals and firm-wide strategic initiatives. We continue to replicate this model, with the goal of having 12 full-time advisors by 2021.

Structure ownership succession.

For our founder, it was a simple idea: He wanted to set up a passive ownership model that would ensure the firm would perpetuate according to his original vision and mission. This simple idea was actually an intricately constructed three-part plan. First, a trust was created to hold all the controlling shares for the company upon his passing, ensuring that the shares would be protected from firm-wide monetization or liquidation, which would not benefit the client’s interests. Second, a board of directors was created to oversee and provide corporate governance for the operating business. Third, he transferred operational responsibility of VNFA to a new CEO — me.

Now he serves as chairman of the board and spends his days working with his clients. In the end, our firm is designed to operate more like a privately held business versus a partnership or multiple-owner model. The obvious hurdle this creates is incentivizing and retaining our talented team without direct ownership. Over the past year, we have created unique compensation incentives for next-generation management and senior advisors that echo equity ownership. This is designed to create a solid passive/active ownership model for the next generation and keep key leaders focused on the clients.

Establish branding and marketing strategies.

When a founder decides it is time to transition or exit the business, no one person is able to fill that void. We developed a brand based on the founder’s core values and mission as a foundation for the long-term. With that brand to stand on, we have encouraged advisors to develop and publish thought leadership so that clients and the community would learn to know, like and trust the people representing that brand. This collaborative approach has helped our clients understand the importance of succession and how it will sustain their relationship with our firm.

Part of our brand is that we are and will remain a local and independent firm. So, we participate in our local and regional community. That meant that when our firm celebrated 30 years in business, we celebrated with our community. The goal was to tell our succession story to the community and solidify client confidence that, although things change over time, we will continue our promise to always put the client first in everything we do.

Your story is going to be different. We, by our nature as advisors, help our clients plan, and they rely on us for generational advice. We should be doing the same and ensuring that this advice will continue. If you are not planning for succession, you are not fulfilling your fiduciary obligation to your clients and their families. Be patient, and take it one step at a time. After all, the strategies for succession I have outlined in this article have been progressing for seven years.


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