Don’t let misconceptions stop you from putting a formal succession plan in place. Here’s the truth about planning your exit strategy.
If succession planning feels daunting to you, you’re not alone: most financial advisors in Canada haven’t yet determined how or if they’ll transfer their business to someone else. However, creating a formal succession plan – one that lives on paper rather than in your head – isn’t as insurmountable as you may think. In fact, an IPC Advisor Succession Planning Survey helped debunk several myths that often hold people back from planning, all of which don’t hold up once the work begins. Here are some of the most common myths about succession planning, and the truth behind them.
Myth #1: “If I haven’t started a formal succession plan, I’m far behind my peers.”
Truth: 80% of financial advisors haven’t completed a formal succession plan. Among Boomers, the group closest to transition, the figure is just 27%.
The takeaway here is that you’re not an anomaly. The longer you wait, though, the more costly delays can become. A plan should outline when your transition will begin, what your practice is worth, who could take over and how clients are introduced to the successor. Without a plan, you run the risk of being forced to sell before you’re ready or earn less from the sale than you’d like. The earlier those details are worked out, the better the handoff will be for clients and staff when the time to transition comes.
Myth #2: Alt “Succession means the end of my career”
Truth: Only 38% of advisors plan to retire completely, while 45% expect to stay involved in some way after a sale.
A common barrier to creating a plan is the belief that once you sell, your career is over. But that’s not true for everyone. While some will want to retire completely, for many advisors, succession isn’t the end of their work. You might sell part of your book and stay on to work with a smaller number of key clients. Or you could stay on as an employee at the purchasing company, working more with clients rather than focusing on the day-to-day operations of running a company.
Whatever path you choose, define the role you’ll play during and after the sale before the actual transition so it’s clear what your next steps will be. Having that clarity could make the sale easier not only for your clients but for you, too.
Myth #3: “Succession planning can wait until I’m ready to retire.”
Truth: Nearly half of advisors (45%) say developing a succession plan takes between one and three years. Another 28% say it takes five years or more. Our recommendation: It’s a good idea to start planning six to eight years in advance.
It’s easy to put off succession planning until you’re almost ready to retire, which is what many people do. The reality, however, is that it takes time to properly prepare. Many of the decisions you’ll have to make as you plan – how much you might want from the sale of your practice and what kind of buyer you may want to seek, for instance – can take three to five years to figure out. You also need time to prepare your clients and to set up the internal processes that often make an advice-based business more appealing to buyers. Planning further in advance gives you more options and ensures you’re well prepared to make decisions that are right for you and your business.
Start by creating a continuity plan, if you don’t already have one, to formalize what will happen to your business in case something unforeseen happens, such as illness or disability.
Myth #4: “The best succession plan is the one where I’ll get the highest price.”
Truth: You’ll likely want to balance the sale price with expectations around the approach a buyer will take with your clients. Research shows that advisors are more likely to prioritize the client and staff experience over maximizing their total payout. Maintaining client trust and relationships is very important to 79% of advisors, while 76% say the same about client and staff continuity. Maximizing total payout sits lower at 46%.
A good price is part of any successful sale, but after spending years building trusted relationships with clients, making sure people are well taken care of is often just as important as money. Other questions like ‘Does the successor share similar investment philosophies that truly suit the client’s needs?’ ‘Do they want to keep your staff around?’ Think about how you want your business to live on and whether the highest bidder is also the one who cares about what you’ve built up.
Myth #5: “A succession plan has to be custom-built from scratch.”
Truth: Almost two-thirds of advisors (63%) prefer to use a standard succession plan template as a base when creating their own.
The thought of building a plan from the ground up can make the first step feel bigger than it needs to be. A template or planning framework can lower that barrier by giving you a place to start and showing which decisions typically need to be made first. That kind of support might come through a mentor, legal and tax professionals or succession-planning resources within your own network. You’ll still have to shape the plan around your own business and needs, but having a ready-made place to start can help you move from “I’ll get to it someday” to getting your formal plan in place.
