Succession is essential for RIAs and connected stakeholders, including owners, employees and clients. Yet, mistakes in the planning process can be detrimental to all such parties.
Therefore, it's vital to understand such potential pitfalls in order to mitigate risks and inform effective implementation of a succession plan.
Below, we highlight six of the most common mistakes made by advisors when planning for an internal succession and offer recommendations on how to avoid them.
1. Procrastination
The most common mistake made by RIAs in the development and implementation of the plan is procrastinating.
Succession planning is not always the most pleasant topic to discuss or the highest priority at any given point. However, delaying planning can lead to rushed decisions and inadequate preparation, increasing the risk of a poorly executed transition.
Procrastination can (and often does) lead to valuable employees leaving to pursue other opportunities as they lose hope that their current firm will provide a career path they desire. If succession planning is not accomplished before key persons die or become incapacitated, clients will also suffer.
One way that RIA owners can counter procrastination with respect to succession planning is to establish relationships that promote accountability — whether through participating in a mastermind with other RIA owners, where participants encourage one another, or through having a coach or accountability partner help keep the RIA owner on track with respect to succession planning goals.
2. Failing to Involve Employees Early in the Process
Another mistake is failing to adequately prepare next-generation employees to assume new roles and responsibilities as part of the business succession.
Founders often want (and believe they need) to maintain a tight grip over the business, including managing client relationships, until they exit. However, if the firm fails to adequately train employees and, if appropriate, introduce them to clients, with sufficient time for such employees to learn their new roles and the clients they will serve, the succession plan can veer off course.
If employees are not prepared, this could also result in a loss of confidence from firm clients, and could ultimately result in attrition upon the departure of the firm's founder.
RIA owners can counter this by gradually handing over responsibilities to employees with the aim of evaluating their capabilities over time. The goal is that employees can shoulder more responsibility down the road.
