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Succession planning woes? Your clients can relate
November 26, 2012 / 5:46 PM / 5 years ago

Succession planning woes? Your clients can relate

(Reuters) - Succession planning has long been a challenge for financial advisers. Many of their clients can relate.

In May, the wealth management industry research firm Aite Group released a study showing that only about half of advisers who own their own practice have a succession plan in place.

This kind of planning takes patience, something that entrepreneurs are not necessarily known for, said Mark Tepper, an adviser who has interviewed over 100 business owners for a book he is writing about business exit strategies.

Succession planning “doesn’t fit in with that driver personality that is always go go go,” he said.

Indeed, new research shows that while 60 percent of business owners are confident their business will continue to be successful after they retire, only 39 percent of them have used an expert - like a management consultant, financial adviser or commercial banker - to develop a succession plan. That is according to a survey released Monday by Bank of America Corp.’s Merrill Lynch division.

And a third of those surveyed have not gotten expert help preparing their personal finances for a time when they can no longer run their business, according to the study.

The trends spotted in the study, which was conducted in October and polled 250 people who ran businesses with revenue of $10 million to $250 million, should sound familiar to advisers, who are barraged with reminders that they have to do a better job with their own succession plans.

Tepper and other experts say financial advisers have a responsibility to help their small business clients map out an exit strategy. And, in the process, these advisers might learn to practice what they preach.


Financial advisers are good at handling clients’ investable assets, but they often have a blindspot when it comes to accounting for clients’ commercial assets, said advisers who focus on helping clients with succession planning. This is a huge omission since business owners tend to have a lot of their personal net worth tied up in their companies.

The problem for both advisers and their clients is that it can be so hard to quantify these illiquid assets. That is why advisers should know how to connect clients to business valuation experts, like accountants who specialize in working with business owners and investment bankers who focus on your clients’ industries.

Some good resources are the Business Enterprise Institute or the Exit Planning Institute, which are membership organizations that provide exit planning information to experts like accountants and financial advisers.

From there, ask your clients if you can study their company’s financial statements and get to know their other key advisers, including lawyers and accountants both inside and outside their company.

This is what Mike Swenson, a Wayzata, Minnesota-based private wealth adviser with Merrill Lynch, does with his clients, who are predominantly small business owners. He coordinates with these other advisers on valuing the business and mapping out exit strategies, such as identifying potential internal candidates who can take the helm.

“The only way to know what the big picture is to know what all the advisers’ roles are,” said Swenson, who has been on Barron’s list of the 1,000 top U.S. financial advisers for six straight years.

You also can help your clients develop a game plan by asking them these questions.

-When is the last time you took a real vacation? Time off is not only good for clients’ mental health, but it is a way for them to gauge how well things run without them. If things fall apart while they are on the beach, they need a better plan to govern the company while someone else runs the day-to-day operations, suggested Tepper, who is president of Strategic Wealth Partners in Seven Hills, Ohio.

-Are you prepared for an unsolicited offer? Even if clients are not planning on selling their business, they should not be caught off guard by an unsolicited offer. That means having the business valuation prepared. And service-oriented companies should conduct regular customer-satisfaction surveys, which potential acquirers can use to determine how easy it will be to retain clients through a management change.

-Do I need an ego check? A lot of business owners fall into the trap of thinking they can repeat their first business success. If they get a windfall from exiting their first company, they may be too quick to jump on the next big deal.

“It’s very rare that newfound company is as successful as the first,” Tepper cautions his clients.

Perhaps the best way to get business owners to focus on succession planning is to lead by example.

Jimmy Lee, a managing partner at Strategic Wealth Associates in Phoenix, is only 42, and plans to work well into his old age, but he already has two associate advisers in their 30s who he is grooming to one day take over his business.

“I think it’s very difficult for a financial adviser to tell someone to do something that they don’t do themselves,” Lee said.

Editing by Lauren Young and Andrew Hay

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