How to choose a successor

Boy, was I overwhelmed by the response! Within a couple of days, I had four associates throw their hat into the ring. So, my question now is: how do I choose the right person?

Although there is one candidate about whom I am not that keen, I’d have a difficult time choosing among the other three. Each has a different personality and strengths, and I see pluses and minuses in all of them. How do you suggest I narrow the list of candidates down?

Coach says: It is currently a seller’s market for good books of business and good practices. Hardly a week goes by that I don’t get a phone call from someone wanting to know if I am aware of any practices for sale.

So, you do have the luxury of choice and all the benefits that come with that. But you are absolutely right that the issue of choosing the best candidate becomes more complicated when you have multiple suitors. The weight of your decision becomes really apparent when you realize that your successor is going to be seen as a reflection of you and your life’s work. He or she, in fact, will be the custodian of your legacy. Your clients have entrusted you with their financial affairs and they expect that you will leave them in the most capable hands you can.

On a more practical note, a poor choice of successor can be very expensive. Aside from the disruption and damage to your reputation, if clients start to defect, it will have an impact on your successor’s ability to meet any earnout provisions you may have negotiated.

Although you indicated you are “not that keen” on one of the candidates, choosing a successor doesn’t always mean choosing someone like you or even someone you like. It is much more about finding someone who is qualified for the role, has or can earn the respect of your clients and team members, and has the ability to lead your practice into the future.

Before you begin to evaluate the candidates you already have, ask yourself some key questions about your business, such as:

– Where do I want my business to be in the future? You don’t have to look at the financial advisory industry too deeply to see that leading a successful practice into the future is going to take a different set of skills and perspective than, perhaps, you have today. New disclosure regulations, heightened compliance, changing consumer preferences and use of technology are examples of the factors that demand more than traditional sales skills to lead a thriving practice.

So, don’t choose your successor based on where your business is today, but rather on where you want it to be in the future. Remember, even though you may not be part of the business, you will be 100% of the legacy.

– what does the right successor look like?

So, determine the long-term picture: status quo, aggressive growth or ultimate sale. What type of person will buy into your direction and not only support, but lead it?

– Who are the stakeholders? Your successor should be someone who can engender trust and confidence among those who have an ongoing stake in the success of the business. For example, unless there is an outright sale, family members usually are interested in how revenue from the sale will flow and in preserving the reputation you have worked your life to build.

Clients, of course, want service and ongoing advice. And your support staff want leadership, mentoring, training and loyalty.

– What core competencies do I need in a successor? As noted before, leading your business five years from now will probably rely on a different set of skills and perspective than is needed today. Success in the future will require appropriate certification and licences, sales and marketing skills, strategic thinking and the ability to manage people and communicate.

– Can my successor and I work together through the transition? Continuity is important to clients, staff and others. Collaboration will be required, as will shared values and work ethic. At what pace and to what extent do you give the authority to your successor that he or she will need through the transition? Is your team prepared to support your successor?

– internal vs external succession

You have made the decision to pursue an “internal” vs an “external” transition. That, in fact, is the way most successions are handled. It is less disruptive for clients and you may be able to take advantage of company-provided financial assistance programs to facilitate in-house transitions.

Regardless of whether you pursue an internal or external succession, recognize that it will take time and energy to make it happen – time and energy that will be lost for business development and client relationship management.

There also could be an emotional cost. What starts out as a pleasant experience of inducting someone into your business can deteriorate over time into a task that becomes harder and harder to fit in.

There also is potential for misunderstanding and disagreement as time passes and the “balance of power” shifts from you to your successor. I have seen a number of instances in which it became apparent only after a considerable amount of time that there just wasn’t a “good fit” between the retiring advisor and the intended successor. A plan with agreement on how to deal with that situation – or if one party simply changes his or her mind – will be essential.

– special considerations for family members

In addition to needing many of the skills, qualifications and positive attributes of the practice’s founder, family members taking the helm of a thriving practice almost inevitably face additional challenges, such as:

– comparison with Mom or Dad and the way she or he ran the business;

– the notion that the right to run the practice was bestowed by the parent rather than earned by the successor;

– jealousy from other family members.

In addition, in family-succession situations, there often is a very large gap between parent and progeny in terms of age, tenure and experience in the industry. The family successor also would probably lack the technical knowledge, client relationship management experience and reputation of his or her parent. And that intangible “fire in the belly” to ensure the growth of the practice also might be lacking.

To deal with these issues, a family member assuming the leadership role in a family practice must be passionate about carrying on the business and willing to give extra effort to demonstrate his or her own work ethic. The successor must be free from a sense of obligation to carry on the business; rather, he or she must want to do so. Also essential is the respect of clients and staff and the willingness to invest in the business.

Regardless of whom you choose, the cost of picking the wrong successor can be high and include loss of clients, an exodus of good staff, damaged morale, risk to your retirement fund, destruction of your practice’s value and, most important, the decimation of your lifetime’s work.

For these reasons and more, be deliberate in your process, diligent in your evaluation and thoughtful in your selection.IE

This is the fourth instalment in a five-part series on planning your exit. Next: the components of a good succession plan and how to document the process.

George Hartman is managing partner of Accretive Advisor Inc. and CEO of Market Logics Inc. in Toronto. Send questions and comments to george@marketlogics.ca.

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