Financial planner Dick Vodra, a longtime friend, sold his business to a like-minded colleague not long ago. Hoping to benefit from his perspective in retirement, I asked him how other advisors are dealing with succession planning these days.
Many have no intention of retiring, Vodra told me. They insist, "I'll work till I drop." But, he added, if someone were to ask what would happen after they drop, often there's silence.
Succession planning has been discussed for a number of years as independent advisors move into their 50s, 60s and 70s. Although most of these older professionals want to reap the rewards of their hard work, pass on a legacy and enjoy the next stage of life, some resist dealing with this transition in a way that will serve their clients and themselves well.
To examine some of the fears and anxieties around passing on a business, I interviewed three experts who are frequently involved in this process: David DeVoe, managing partner of DeVoe & Co., a mergers and acquisitions consulting firm in San Francisco; Barbara Hudock, CEO of Hudock Moyer Wealth Resources in Williamsport, Penn.; and Cam Marston, president of Generational Insights, a consulting firm in Mobile, Ala.
DENIAL OF MORTALITY
Denial of death and dying is a huge element in our culture, so it's not surprising that many advisors act as if they'll go on forever at the top of their game. But I have to believe that niggling fears at the back of these advisors' minds are warning them that they're not taking care of their business, or their clients, by avoiding the possibility of future decline. Just as important, they are passing up opportunities to plan a third age that might be richer and even more fulfilling for themselves.
Dave DeVoe runs into this issue in his presentations to wealth managers. "When I ask if succession planning is important, 80% will raise their hands," he said. "When I ask who has a written succession plan in place, only 25% of the hands will remain."
Why so much resistance? Said DeVoe, "I think there's psychological friction because succession means change, and retirement ultimately leads to death."
But attitudes may be changing. "'Die with your boots on' as a succession plan is a refrain I hear much less than I did 10 years ago—which is a good thing, because that outcome has a negative effect on the client base," DeVoe said. "Imagine an 84-year-old client getting a letter in the mail or a call from an administrator saying, 'Your advisor died—you're on your own.'"
His advice: "At a minimum, you want to have a buy/sell agreement in place with an advisor who shares your investment and client service philosophy. Then if you get hit by the proverbial bus, your clients can turn to someone who is ready to serve them."
DESIRE TO WORK FOREVER
The idea that you can work on and on while serving clients as well as ever is in most cases a fantasy. The reality of old age is that bodies tend to wear out and minds slow down. While there's no harm in expecting the best from the years ahead, it's wise to prepare for the worst—the very advice financial planners often give their clients.
"I don't believe age should be a reason for leaving," wealth consultant Barbara Hudock told me. "This work is my passion, and I do plan to continue for a very long time. But if I got the impression that I was not adding value any more in working with clients and managing details, I'd make plans to leave."
For years, Hudock has been mentoring and training her staff to gradually take over more of the roles she handles. "I've structured it so that I can stay involved without doing everything I did before," she explained. With multilevel relationships in place, the firm is less vulnerable if anything should happen to her. "If I get hit by a car tomorrow, I might be—hopefully will be—missed, but my clients know they'll be in good hands," she said.
In her view, more advisors would do well to prepare carefully with their partners or junior staff for their firm's future: "We need to be honest and direct, recognize our strengths and talk to each other." Moreover, it's a good idea to have a succession plan in writing, as Hudock Moyer Wealth Resources does.
FEAR OF ABANDONING CLIENTS
