To protect your clients, your staff, and your legacy, you must put together a suitable succession strategy years before you plan to make your exit

By Rudy Mezzetta | July 2012

Chris Eynon began working for his mother, Ann Eynon, a financial advisor with Rogers Group Financial Advisors Ltd. in Vancouver, in 1997 as an associate. After four years of learning the ropes and finding out he liked the business, Chris, now 41, took over his mother's practice.

Chris and Ann had negotiated a fair price for the book, then had the necessary legal documents drawn up and officially transferred the business over to Chris. Ann stayed on for two years as a consultant.

Like most advisors, you probably know that proper succession planning is critical to making sure you leave your clients in capable hands when you are ready to retire. A well-executed plan - such as the Eynons' - also helps ensure you will get a good price for your business if you plan to sell it.

And yet, many advisors still wait too long to put a strategy in place, leaving them scrambling as retirement approaches.

"If you don't have a plan and you don't know where you're headed," says Joanne Ferguson, co-founder and president of Advisory Pathways Inc. in Toronto, "then a good succession isn't going to just happen."

In order to protect your clients, your staff and your legacy, it's important that you put together a suitable succession strategy, preferably a number of years before you plan to step back or retire from your business.

There are many decisions to make when preparing your exit from your business. Will you pass your book to an associate or family member, or will you sell it on the market? Will you maintain a segment of your book or retire outright? When will you inform your clients of your plan?

Whichever route you choose, creating a successful strategy that best suits yourself, your clients and your team takes time - and planning.


How long before your retirement date should you begin planning your exit?

Ferguson recommends five years before your retirement date; even earlier if you plan to groom a successor from within your team to take your place. "More time allows you to execute the transition," she says, "at a pace at which you feel comfortable."

You also have to give your clients proper notice. The worst scenario is one in which the advisor abruptly informs clients, via a letter, that as of a certain date, their accounts will be transferred to another advisor without any kind of acclimation period.

"The retention rate in that kind of solution is low," says Kevin Whelly, senior vice president and national director of sales with Toronto-based Raymond James Ltd. "The longer the timeline an advisor has and the longer he or she has to introduce the successor to clients, the greater the rate of retention."

A well-considered succession plan with a long lead time also will allow you to streamline and strengthen your existing processes or introduce needed ones into your business, making it more transferable - and more valuable to the acquiring advisor.

"If you've really built a team," Ferguson says, "then you have a much better chance of having your clients stay with the business through the transition. They are there for the experience they are having with your team, not just you."

Leaving aside the issue of client retention, most advisors feel a duty to their clients, particularly those of long standing, to make sure the advisor finds, or mentors, an appropriate successor. That is, someone who has the right mix of qualifications, business approach and personality to take care of their clients.

"Even if you have 50 people lined up to buy your book of business," says George Hartman, president and CEO of Market Logics Inc. in Toronto, "there might be only one or two advisors to whom you'd really prefer to sell."

There are many approaches to identifying a possible successor - or successors, if your business is to be broken up and sold off to two or more succeeding advisors. Each advisor and advisory business is different, so there is no boilerplate solution to choosing a successor and designing a succession strategy. Each approach offers its own opportunities and challenges.


The biggest advantage to bringing aboard an associate or junior advisor to learn your business and become your eventual successor is that it gives both you and the associate the benefit of time. This is particularly true if the associate is younger and new to the business and brought aboard well before your planned retirement date.

"The associate generally isn't overeager to take ownership," Whelly says, "because he or she often has so much to learn. And clients have time to get used to the new person."

This method also provides the time to mentor the associate properly, so you can both make sure he or she learns your business from the ground up and determine whether the associate has the right stuff to take over your business. If it turns out the associate is not the right candidate to be your successor, there will be time to make a change and find another solution.

The disadvantage to taking on an associate as a successor, particularly if he or she is younger, is that this decision may not find favour with all your clients.

"When you're dealing with youth," Whelly says, "a client may have questions about whether that person is the most qualified or talented person available."

The challenge for established advisors, he says, is to reassure those clients, over time, that the associate is ready to handle their accounts.


The key advantage in appointing a family member as a successor is that you are dealing with a known and trusted entity.

"You know what their strengths and weaknesses are," Welly says. "And you know you can build a client connection because clients can relate to the fact that it's the same last name."

However, choosing a family member as a successor must be handled carefully. A clear line must be drawn, for example, between the personal relationship that exists between you and the family member and the professional relationship, especially when it comes to dealing with other staff members and clients.

For Chris and Ann Eynon, that meant a gradual shift of responsibility for client communications.

Says Chris: "We went from [Ann] chairing client meetings with me sitting in to, after the handover, me chairing meetings with Ann sitting in." Because the process was gradual, he adds, most clients found the changeover seamless.

While Chris was working for Ann, he also worked with another senior advisor at Rogers Group. Chris eventually took over a portion of that advisor's business at around the same time as he took over his mother's book. Working with another advisor exposed Chris to other methods and views and, he says, helped in his development as an advisor.


The advantage of taking on a partner, usually a seasoned advisor, is that you can broaden your team's ability to serve clients.

While someone with strengths and an approach similar to yours makes a good protegé successor, Ferguson says, you should look for someone with complementary skills when looking to form a partnership.

Working in a partnership of two or more advisors has many advantages. For example, you can offer clients broader-based service and the partners can cover for each other during holidays and other absences.

In time, a succession plan can emerge. Depending on the respective ages of the partners, you might leave all or part of your book to your partner. Or you might take on his or her book as part of your partner's succession strategy.

In fact, a major trend in the financial services industry is the formation of larger teams. "Today, most advisors are still generalists," Whelly says, "but the trend is toward bigger teams with specialists."


Selling your book to an experienced advisor with an established practice has an obvious advantage: you and your clients know that you are dealing with a proven, capable business owner.

"You know [the successor] will be able to offer the service," Whelly says, "because he or she has done it already."

There are three key tests in determining whether such a scenario will work out, Whelly says:

1. Fit. Is the advisor suitable for the clients he or she will be inheriting? In other words, is the new advisor's approach reasonably aligned with your approach?

2. Capacity. "It's one thing to say, 'I like this guy'," Whelly says. "But is his business style totally different from yours? We want to make sure the fit is right."

Further, does the new advisor's business have the capacity to take on the number of new clients coming his or her way?

3. Time. Have you built enough time into your succession plan to enable your clients to meet and become familiar with the acquiring advisor?

Only when all three issues have been addressed is a succession to another established advisor likely to be successful.


Whatever form of succession strategy you pursue, it's important to get your agreement in writing once you have decided on the candidate to be your successor.

Putting your plan in writing will impose discipline on the process. More important, having a written plan ensures that everyone - you, the retiring advisor; the prospective successor; and your team members - know what the process is.

"You need a plan," Hartman says, "that specifies when the succession is supposed to happen, names who the intended successor is and outlines the process to follow to make the transition."

Not having a written plan - or having no plan at all - is one of the most common mistakes advisors make when it comes to succession strategies.

It's also important to communicate your succession strategy to other staff members and, eventually, to your clients. This latter step comes only when you feel confident that the strategy is set, and you have identified the appropriate candidate.

Bring the new advisor into your practice gradually and introduce him or her as the successor when the time is right to help win over your clients. Some clients may already have been wondering or even asking if you have a plan for your retirement.

"Make sure the client is happy with the succession," Whelly says. Keeping clients in the loop, he adds, ensures that they "feel part of the succession strategy, that they're not just chattel being moved along."

Most firms have bolstered their in-house succession-planning programs for advisors, helping with issues such as finding suitable successors, managing transitions, valuation and, in some cases, providing financing for the acquiring advisor.

"It's in our best interest that transitions work out well," Whelly says, "and that we have a 100% retention of clients."

A properly executed succession plan also should boost the ultimate valuation of your business. However, some advisors have been known to overvalue their business, then express disappointment with what turns out to be the market value.

Chris Eynon believes the wisest retirement planning course for financial advisors is to assume your business has no value. This way, you would prepare a personal financial and retirement plan that excludes your practice.

"Then, if it turns out your business does have value, that's great," Eynon says. "Our industry changes every day. If I'm supposed to go to sleep at night thinking that in 20 years, I'll be able to sell my practice for a certain number and live on that, I might as well buy a lottery ticket."

Advisors are not always motivated by the biggest monetary offer they receive. Instead, many are most interested in making sure they find the right balance between protecting their clients and staff and monetizing their practice.

Says Whelly: "We've seen situations in which advisors have passed on significantly more money being offered to them for their practices because it wasn't a good fit. It's their business; they've built it themselves. They take extreme care in selecting someone who will take care of that legacy."

© 2012 Investment Executive. All rights reserved.