Let me tell you a succession story. About five years ago, I did a recruitment for one of my client firms that resulted in two pretty mediocre candidates by conventional standards. Yet I sensed that one of them had an extraordinary drive to become a good advisor, and since we didn't have a lot of options, I suggested that my client hire him. Just three days later, the firm owner made the assessment that his new advisor couldn't do the job, and he wanted to fire him: "He doesn't know how to use Excel. He's shy in front of people. His financial plans are basic."
I reminded my owner/advisor that he had made a 90-day commitment to his new employee (the kid had moved from another state), and looking for another advisor would set his plans back at least six months to a year. Once he calmed down a bit, I suggested he not think too long term: We still had seven years or so before we needed to start thinking about succession. Instead, I told him to commit to making the young advisor into a good advisor, which he agreed to do.
Fast forward to two years ago. True to his word, my client had worked diligently to train his new advisor and succeeded at making him a very good advisor and a great firm employee. Now a lead advisor, the "kid" had become more than competent at all phases of financial planning, excelling at portfolio management, working directly with clients, taking initiative and leading the other employees to do their best. Now it was time to focus on a succession plan, and the owner/advisor wanted to hire another advisor to take over the firm.
In his mind, the problem was that his younger advisor didn't have any business management experience. I pushed back, asking him to consider the advisor he already had. He waffled, and we continued to talk about it for a year. Finally, in one of our discussions, when I once again reminded my client what a good advisor and employee the young advisor had become, he responded, "Sure, but I'll have to teach him to be an owner."
I shot back, "Like you had to teach him to be a good advisor?" You could actually see the light bulb go on: He realized that like training a young advisor, training another firm owner was an essential part of his job. After talking with the younger advisor, who happily made the commitment to work hard at learning what he needed to know (just as he had done since he was hired), the owner made the commitment to teach him to be his successor—and I guarantee he will be, in about two or three more years.
Practice transition and succession planning is increasingly on the minds of independent advisors these days, both older and younger. Many older advisors would like to transition the care of their clients to another advisor of their choosing and reap the benefits of the value they've created, while many younger advisors would like to own their own firms. Yet, as far as I can see, the advisory profession hasn't created an effective formula for making these transitions successfully and consistently. In my experience, the solution lies in adapting the business model that's been successful in other professions to the advisory world, with well-thought out programs that first create great advisors, and then create great business owners. Owner/advisors need to accept that these are essential elements of their jobs: teaching young advisors to be great advisors, then teaching them to be great owners.
One of the current holes in the advisory profession is the lack of an ethos to pass older advisors' knowledge on to the next generation. Training young professionals is a major part of most professions today: I'm talking about on-the-job training, beyond schools or additional course work. Doctors have an elaborate training system, largely based around hospitals, in which both practicing and staff physicians train interns and residents, with even the more experienced of these doctors training those with less experience. Law and accounting firms work much the same way, with young professionals assigned to teams of older professionals, who serve as mentors, monitoring their work and gauging their progress.
