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Succession Planning

Passing the Baton


"Once an agreement is made between the general agent and the senior advisor, the advisor should expect to start phasing out over a 12- to 18 -month period.”


The State of the Industry

The average age of leaders and advisors in the industry has been increasing for decades. By 2014, one in 10 financial advisors was over the age of 60, according to MDRT. About 40 percent will be transitioning within the next decade, according to other sources.

The greatest percentage of established and successful advisors are Baby Boomers and Gen Xers, while members of the giant Gen Y wait in the wings, ready to fill gaps. It’s a huge opportunity for all generations and should be espe-cially reassuring for clients of advisory firms who are concerned about future services and advice. Unfortunately, just 32 percent of advisors claim to have a succession plan, and only 17 percent have a binding and actionable agree-ment, according to a white paper by SEI Advisor Network cited in the Dec. 17, 2014, CNBC article “Does Your Advisor Have a Succession Plan,” by Jim Pavia.

The Problem: Not Enough Knowledgeable Advisors

Oddly enough, the root cause of this looming crisis in financial services is the overwhelming success of established financial advisors. Most have built large, profitable practices through client acquisition, by increasing assets under management and substantial insurance operations. Clients have been well served and expect that to continue. The principals in the firm are aging, but few have prepared for succession management. The current average age of MDRT members, for example is 47, and nearly 14 percent are over 60. The time for intelligent and careful planning is past due.

What to do? The first step is to identify and assess potential candidates. Onboarding new and younger advisors will require that you rethink your training methods. Gen Y prefers different learning environments from previous generations, such as collaborative and community-based learning instead of classroom learning, or even virtual learning that can be completed outside traditional business hours — diverging from the norm for our industry. One thing that hasn’t changed is the financial investment and time commitment to deliver effective training. It takes time to hone the native talents of individu-als, and one of the better methods for this is mentoring. A successful mentoring program must cover three basic areas:

  • How to be a professional salesperson
  • How to treat and nurture client relationships
  • How to learn about and understand markets

All three objectives are considered essential for a successful training program. But far too often, even the firms offering mentoring fail to include all three of these areas and tend to focus on the one that generates the most immediate profit rather than long-term benefits: being a good salesperson. Part of the process should involve joint work with senior advisors to help build relationships and trust for the future transfer of clients.

The Solution: Successful Succession Planning That Engages Each Generation

Successful financial planners should also be experts at planning not only their own businesses, but succession. A results-proven model for this is needed. Current models often feature a study of the various ways a financial practice might be transferred, including through sales, equity positions, and leveraged buyouts. You simply have to get the senior advisor engaged. Near-retirement advisors fall into two categories:

  • Practicing what they preach. For many smaller practices, an internal succession with a well-planned exit strategy is the only way to go, and the savvy senior advisor gets on it early. The key to the success of this method is advanced planning, with potential candidates evaluated on ability, commitment, and cultural fit.
  • Better late than never. This approach might include creating a plan within two years of retirement, sparked perhaps by the specter of death or disability. A younger advisor can take on the practice, even without the funds for a lump sum or graduated repayment buyout, because there’s less time to set that up. The focus on this shorter time frame will be the logistics of handling clients and files. The transfers and the actual meet-and-greets, where the senior financial advisor takes the younger advisor out to introduce him or her to clients, will be cut to maybe a handful of the top clients, reducing the retiree’s bargaining power for overall price of the book of business. Still, the retiree-to-be realizes that something is better than nothing.

Whichever the case, who’s going to step up to the plate? We all know that the 80 million–strong Generation Y is technologically savvy, well educated, and intelligent, but this group wants more than a job. They want to contribute and to make a difference. And making a lot of money is not this group’s highest value; it’s just one way of measuring how much of a difference they are making, and they’re pretty big on stability as well.

But how to incentivize members of this generation to enter the field of financial advising? Focus on the relation-ship aspect of the position. There is no better way to make a difference than investing in the lives of others.

2015How to Get Off the Starting Blocks

So you see the problem and you see the solution, but how do senior advisors get past the hurdles and down the track so they can ultimately pass the baton?

That’s where the general agent comes in. In my case, it has worked well being a member of Generation X. It has put me in natural position to help bridge the gap between two generations, to understand their differ-ences and help solve communication issues. For instance, the older generation prefers handwritten thank-you notes, while Gen Y seldom writes and often texts. Texting’s shorthand language can be confusing for older advisors, but the general agent can help them embrace it as a means to shorten the time in communi-cating ideas. After all, isn’t that what this business is all about: time management.

Gen Xers can generally fill this communication gap with ease, so consider having a Gen X manager, if available, in the mix to assist.

In the end, the GA is instrumental in smooth advisor succession. Here’s how you can help make the whole thing work:

  1. Actively recruit Millennial advisors while being on the watch for senior advisors who may need help with their succession planning.
  2. Mentor new advisors and provide a built-in client base that will satisfy the desire for stability that Millennials have, while offering them the flexibility and opportunity that their generation is able to recognize. Senior advisors also get what they are looking for: a structure for longevity for their clients and the manpower to sufficiently advise and service those clients. This engages Millennials and offers them multiple licensed professionals available for quick responses to questions. And Millennial advi-sors will be all set to begin nurturing the client relationships acquired from senior advisors.
  3. Have a strong mentoring program in place. Millenni-als can start as interns while still in school to begin gleaning knowledge of the industry. Given time with a more experienced advisor at the agency, and a willingness of the Millennial to fully engage, the mentoring process can ease the client transition from the senior advisor.
  4. Get client buy-in. Clients will need to know that the transition is well planned and will be implemented over time without disruption in quality of service. The key is complete disclosure and clear communica-tion. So have Millennials engage with the acquired clients as soon as possible.
  5. Attend meetings with senior advisors, Millennial advisors, and clients while the client base is transition-ing. This way, the client can begin to recognize the name of the Millennial advisor and feel comfortable calling in with questions, knowing that the young advisor has been learning about the client’s personal situation and needs. The client will also see that the GA is always available for assistance, just in case.

Senior Advisors: Staying in the Game

Senior advisors who never put a full succession plan into place will need to be concerned about two things: the future care of their clients, and future income from their business. Having the senior advisor maintain a presence, even if he or she only comes into the office once a quarter, is key to a fruitful transition.

The problem with any form of lump-sum buyout for the senior advisor’s book of business is that there is no incentive for his continued concern for clients or the success of the agency. But tying the buyout to commissions obtained directly from the client base results in a continued sense of ownership for the senior advisor. Now all parties will be focused on the success of the transition.

Once an agreement is made between the general agent and the senior advisor, the advisor should expect to start phasing out over a 12- to 18-month period. He or she should shift daily activities from personal production to the success of the succession plan by focusing on arranging appointments with key clients with himself, the GA, and often the Millennial advisor. It is the senior advisor’s way of letting clients know they are in good hands, and it clearly outlines the new partnership before the senior advisor reduces his or her role.

And by focusing the compensation for the senior advisor on business written from his transitioning client base, it’s clearly up to the senior advisor to ensure that the succession is properly established. The bonus of setting up client meetings during the 12 to 18 months is on the senior advisor, while follow-up appointments and communications fall to the Millennial. Then after the initial transition is completed, the senior advisor should continue to check in periodically or be available to answer client-history questions.

Each generation has a major role in solving the problem that faces our industry. If addressed in the right way, the transition can be a huge opportunity for everyone involved — most importantly, the clients.

It’s never too early for seasoned independent advisors to begin the process of planning for succession. Your job, as general agent, is to remind the financial advisor: “Don’t stop short of the finish line!”


Through 20 years in our industry and serving clients in 17 states, Jonathan E. Marshall, CEPP CLTC CRPC, has pursued his passion for business-continuation planning — particularly for financial advisors. Jonathan founded and runs an elite group of professionals — DG Advisors. His wife, Lisa, heads the associated law firm DG Law. Offering financial and legal services under one roof has worked well for clients, new advisors, and transitioning senior advisors. Jonathan is a lifetime member of Million Dollar Round Table, having achieved Court and Top of the Tables. He holds a master’s degree in management from the American College and a bachelor‘s degree in business administration from Thomas More College. He can be reached at jon@mydgadvisors.com.

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