Succession Planning in the Financial Sector

Planning for the future is a key endeavor for any business. Whether you are crafting next year’s marketing strategy or drafting a business plan for the next five years, it’s important to always be looking to the future. Perhaps the most critical task involves planning for the future leadership of the company. Nowhere is this task more critical than in the financial services industry. Sadly, it’s a task that has been largely ignored.

Industry-wide, succession planning remains a significant problem, as the majority of financial services firms are woefully unprepared for this eventuality. According to the 2011 Fidelity RIA Benchmarking Study, 75 percent of investment advisors either didn’t have succession plans for their businesses or have plans that are not yet ready to be implemented. At the same time, more than half (54 percent) of investors who work with an advisor say it is important for their advisor to have a succession plan. Can you say “disconnect?”

Exactly why financial advisors have been so lax in planning for their firm’s future leadership remains a mystery. Perhaps they feel they are just too busy. Perhaps they don’t want to consider their own mortality. More than likely, they simply can’t fathom someone else holding the reigns of the business they gave their blood, sweat, and tears to build. Whatever the reason for their lack of action, they need to find a way to set aside their hesitancy and begin planning for the inevitable.

Here is a list of the 10 Steps to Successful Succession, as defined by

  1. Start the conversation.
  2. Create a formal succession document.
  3. Identify high-potential employees.
  4. Partner candidates with mentors.
  5. Broaden candidates’ skill bases with rotations.
  6. Conduct annual performance reviews.
  7. Manage expectations.
  8. Develop contingency plans.
  9. Be prepared for defections.
  10. Communicate often, precisely, and discreetly.

In addition, you may wish to keep the following key strategies in mind, as you begin crafting your own succession plan:

  • The Earlier, The Better – A smooth transition requires advance planning, so begin laying the ground for your succession plan as soon as possible.
  • Keep Clients in the Loop – Personal relationships are key to success in the financial services sector, so be sure to let your clients know what’s going on, so there won’t be any surprises down the road.
  • Consult with Experts – A legitimate succession plan should have the approval of your legal team, so be sure to consult with them as you draw up your agreement.
  • Be Realistic – Honesty is key when conducting succession planning. You may have some staff members – perhaps even family members – who expect to be the next in line for the throne. But if they don’t have what it takes, by all means, don’t plan to hand the reigns over to them. You have worked hard to build your business to what it is today. Your primary goal should be to lay the groundwork for continued success long after you have moved on to the next chapter in your life.

Need some assistance building your succession plan? Contact Daley and Associates. We specialize in working with the financial sector and can help you find the expertise you need to prepare for your firm’s future.

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