a woman entering a door of unknown mystery

This article appears in the June 2020 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.


“Coach’s Forum” is a place in which you can ask your questions, tell your stories or give your opinions on any aspect of practice management. For each column, George selects the most interesting and relevant comments from readers and offers his advice. Our objective is to build a community of people with a common interest in making their financial advisory practices as effective as possible.

Advisor says: I lead a mid-sized dealership and have become increasingly aware of the risk to our business from retiring advi-sors. I have been trying to encourage internal succession; however, getting these advisors to even begin a conversation about their transition, let alone create an actual plan, is difficult.

Any advice on how to begin the dialogue?

Coach says: I addressed this question in my previous column by suggesting that you might have greater success in engaging advisors if you can learn about their personal financial capacity to have the retirement lifestyle they desire and their emotional enthusiasm for making the transition out of their life’s work.

Oddly, folks who counsel others on their financial security often are unprepared for their own retirement, but that is the sad truth. However, what’s important (and not surprising) is there often is a direct correlation between financial capability and emotional willingness: more financial security leads to greater psychological comfort. Therefore, if you can assist advisors on both levels, by first helping them augment their practice’s value, you will significantly enhance their motivation to pass their business to a trusted colleague.

With that in mind, I promised to introduce a strategy for making the final years of an advisor’s career their best by maximizing the value of their business just prior to their exit. That will increase their emotional readiness, elevate their legacy and thereby allow them to make the transition positively, proudly and profitably.

Here is the simple strategy: become a “transition coach” to business-owner clients. Sounds straightforward enough; advisors are always “coaching” their clients — about markets, planning and investment strategies. However, transition coaching is a specialized field that requires specific preparation. If I were going to recommend this approach to those hesitant advisors, here’s what I would suggest:

A properly designed strategy of coaching your business-owner clients through their succession opens new possibilities for increasing assets under management through proceeds of business sales, estate planning, insurance and annuity applications, and next-generation engagement. All of these will contribute to higher valuation of your practice at the time of their ultimate transition.

Many advisors look upon their final five years in the business as a time to slow down. But imagine having the final five years of your career dedicated to helping business-owner clients fully monetize their life’s work while you maximize the value of yours. This could be the most fun you’ve had in years. It could re-energize you as you talk with your clients about something different from your normal conversations. And this exercise is a profitable way to write the last chapter of your career.

However, if you are going to pursue this course, there are unavoidable caveats:

First, you absolutely must have completed your own succession plan in full detail. Without your own transition mapped out, you have no credibility or point of reference to help clients with their retirement plans.

Second, to have a meaningful impact on your business, you need to commit fully to making your transition plan a significant part of your value proposition as you progress toward your own exit. That means learning all you can about succession planning, having a well-defined fact-finding and recommendation process, implementing a solid marketing plan to let the world know about your new service offer and being prepared to collaborate with and, ideally, lead the accountants and lawyers on whom business owners mostly rely for business-related advice.

The timing of succession planning is important and applies equally to you and your clients. The quality and tone of your planning process will depend on the length of time allotted:

  • Five to 10 years to plan a transition allows you to follow a strategy of inspiration. You will have time to strategically plan to maximize value and influence the outcome.
  • Three to five years to plan a transition requires you to adopt a strategy of perspiration. There is a lot to do tactically to prepare the business and the owner for transition.
  • One to three years to plan a transition often necessitates a strategy of desperation. This time frame flies by quickly when you are scrambling to “dress up” a business for sale, find the right buyer, etc.
  • Twelve months or less to plan a transition is, in my experience, a strategy of hallucination. Hoping to maximize value in months vs years may be fanciful or even delusional.

How many business-owner clients have said something to you like: “My investments are my investments and my business is my business” and refused to accept your argument that much of their wealth is tied up in one single micro-cap stock? By coaching the client regarding their eventual exit, you will be able to properly bring the assets of their business into the calculations.

This is not to say that every business-owner client will sell their business for millions of dollars. Regardless of the size of their business, you still have an opportunity to have a significant impact on their retirement. Let me give you a real-life example:

Joe owned an autobody repair shop. You know the kind: an old converted flat-roof building, damaged cars all around, the smell of body filler and paint always in the air — not impressive from the outside, but always with a backlog of customers because Joe and his team did great, honest work at reasonable prices.

Joe had worked with his advisor, Tom, over the years to create a retirement fund of approximately $500,000. Not a huge amount to fund a post-work lifestyle, but important to Joe to supplement his government benefits. He never anticipated selling his business, thinking he would just close it down when the time came (a dominant thought among many small-business owners). Still, Joe worried about his employees’ future.

However, Tom had a different idea and began working with Joe to define the “when” and “how” of his retirement more specifically. Here’s what Tom did:

  • arranged for a valuation, which turned out to be $300,000 — a big shock to Joe
  • determined that Joe would consider selling only to his employees, not to a competitor
  • talked to employees about buying the business
  • learned that no individual could afford to buy the business outright
  • put together a plan that allowed employees to collectively buy 20% of the business each year over five years
  • began training specific employees to take on management roles in advance of the transition.

There is more to the story, of course, but what’s important is the outcome. Joe invested the annual payments from his employees and when he retired five years later, his retirement fund had grown to $900,000 — an 80% increase and a huge impact on Joe’s retirement lifestyle and willingness to exit the business.

I could tell you other stories about clients who sold their businesses to private-equity groups, industry consolidators, competitors and even customers for millions of dollars. The size of the deal is less important than what it does for your client — and you.

Even if you don’t already have many business owners in your client base, the fact that you can differentiate yourself from other advisors with this special focus opens up introductions to new clients through referrals, particularly from lawyers and accountants with whom you may collaborate.

There also is the huge advantage of engaging with your clients’ next generation, whether as part of a family succession or as participants in the wealth created by the sale.

Considering the psychological aspect of transition, you are best equipped to lead clients’ succession teams as a result of your experience in discussing personal objectives and emotional life issues with your clients. With all respect to the other professionals, they don’t have the same insight into human behaviour and broad perspective of clients’ lives that you can bring to the table. Clients need someone on their side who is trusted, knowledgeable and understands the mindset of an entrepreneur.

All your business-owner clients will leave their business one day. Will you let fate and circumstance dictate what happens to the business they have spent their lives building? Or is there a better way for you to fulfil your promise to be there when clients really need you, build value in your business and end your career on a high note

George Hartman is CEO of Market Logics Inc. in Toronto. Send questions and comments regarding this column to george@marketlogics.ca. George’s practice-management videos can be viewed on investmentexecutive.com.