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.
