Plus, how should advisors with life & health practices approach their succession plans
There’s a deep irony in talking to advisors their own succession plans. Advisors spend their days working to facilitate the retirements of their clients. They plan down to the most minute details and spend countless hours gaining certifications to help with the disposal of businesses and the administration of estates. Yet many neglect their own plans, to the possible detriment of themselves and their clients.
Michael Aziz sees this firsthand. The Chief Distribution Office at Canada Protection Plan of Foresters Financial explained some of the risks that advisors and clients are left exposed to by a lack of sufficient succession planning. He outlined some of the strategies that advisors can use to begin this process, and the unique considerations for advisors with life insurance distribution in their practices. He began by explaining why this industry continues to have a problem with succession planning.
“When you're generally in the weeds, you're working, you're trying to grow your practice. You're trying to learn. You're not always looking five or ten years ahead,” Aziz says. “So you tend to ignore the succession plan. All of a sudden you realize, you’re at a point your life where maybe you don't want to work as hard, and that's generally that timeframe is too short.”
That scenario, Aziz notes, is for those advisors who can still choose to retire. Many of us are left in situations where retirement is forced, not a choice. Those situations can be even more devastating for advisors without a succession plan. Last-minute retirement, Aziz says, is a major risk to avoid.
Aziz suggests that the work of succession planning should begin around ten years before the advisor intends to retire. That much time, he says, can allow for appropriate consideration and exploration of options. For example, many advisors with huge practices may want to sell off their practice in tranches to different successor advisors. They may want to transition more slowly, or ensure that their clients are matched with the right successor. All of that takes time and planning. They may want to factor in their own growth plans and work out when they want to stop taking on more clients. Disposing of a practice is like stopping a freighter, it takes time.
Failing to take that time can lead to a number of bad outcomes for clients. Clients can end up with advisors not suited to their needs, or with a relationship they don’t trust. They could be exposed to tax issues if they have to move assets or they could be orphaned entirely and put adrift. Advisors are at risk, too. Selling a book last minute runs the significant risk of that book selling for below market value. Aziz likens it to a fire sale. Making a slow, methodical decision can optimize outcomes for clients and maximize the value of the book.
Choosing the right successor is key to navigating all of those risks. Aziz suggests finding someone who shares an advisor’s investment philosophy and who can operate in the same niche markets that an advisor has operated in already. Advisors considering their successor need to ask if that person will fit in with their clientele. Advisors whose practices include life insurance need to be especially careful in choosing their successors, to ensure that those successors can adequately manage this side of their business.
Beginning this work means lifting your eyes and seeing more than just your calendar of meetings and list of daily obligations. Aziz suggests that perspective could first be achieved by looking at the whole book. He notes that some clients will not be part of an established advisor’s regular routine, and those clients could be the first tranche to move to a succeeding advisor. A complete picture of the book can inform the succession strategy, in his view.
Aziz argues that strong succession strategy, built with the same kind of planning acumen and accounting for flexibility that advisors apply to their clients, can give advisors the ability to navigate the uncertainties that come with disposing of a practice.
“If you’ve got the transition in place you can increase the value of your book. If you’re selling it right before you want to retire, you’re probably going to get a lower value, but planning ahead can protect against that,” Aziz says. “It can even protect against the worst-case scenario where something happens to you before you leave. That way your beneficiary can get the proper value for that book of business. It all goes back to structure.”
