The consultant fails to meet the requirements in terms of succession planning

One of the keys that many financial advisors focus on with their clients is business succession planning. Sale and purchase agreements and other tools are often used to ensure a smooth transition from one owner or partner to another. But many financial advisers themselves are not ready to hand over control of their business to their successors. A study conducted by Fidelity Investments in 2015 showed that although about two-thirds of every consulting firm wanted to change ownership internally, only about a quarter of them had a clear successor. Only 40% have any type of succession plan. If the consultant fails to take substantive measures to correct the situation, this discrepancy may cause major turbulence in the financial industry.

A growing problem

Consultants approaching retirement age need to actively seek out one or more successors for their business. If they do not have a designated buyer or other successor who is ready to step in when they leave, then they may end up causing significant harm to their customers. Fidelity’s research also shows that more than one-third of consultants in the current market will leave the company within the next ten years, and many of them have established a large number of practices. Even more disturbing is that about half of the companies surveyed said that their employees will not or cannot take over their jobs when they leave. It can take five to ten years to train someone to take over the business, so those who have not yet developed a clear succession strategy need to take immediate action. (For more information, see: FA should include customers in succession planning.)

The first step is to determine exactly what skills and abilities the successor needs, and whether these skills and abilities are taught to existing employees or sought from external buyers. If internal employees express interest in buying this approach at some point, now may be a good time to start discussing financing options, which will give younger buyers more time to prepare.

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Fidelity’s research also shows that a higher percentage of the most successful practices in this area have been prepared, of which only more than half have a succession plan. In the past three years, a higher percentage of companies have also taken concrete steps to formulate succession plans, and nearly three-quarters of them have a solid mechanism that can provide valuations for their practices when necessary (in contrast, There are about 60 percent of other companies). (For more information, see: How to develop a business succession plan.)

Customer inheritance

Another key issue related to the consulting succession dilemma is the current demographics of the consulting client. At present, slightly more than one-fifth of all customers are over 70 years old, and these customers collectively hold more than one-quarter of the assets under management of the company under investigation. Potential counseling successors need to understand their children and other heirs before inheriting their parents’ wealth. Bridging the generation gap with customers can help successor consultants generate continuous income from the practices they purchase or inherit. (For more information, see: The best techniques to prepare your consulting practice for sales.)

Bottom line

Consultants who devote their careers to building a business need to ensure that their clients are taken care of as they move on. Every consulting company needs to have a clear understanding of what a successor must be able to do in order to run the business, and begin to take practical steps to implement a clear succession plan. (For more information, see: Management skills of top financial advisors.)


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