The intergenerational transfer of wealth management firms is a deep issue facing the financial services industry. There is a lot of conversation happening around the expected $84 trillion of wealth that is to be passed down to heirs over the next two decades, but there is not enough conversation surrounding what the transfer of a company might look like and the shortcomings that could arise in the process.
To secure your legacy and set the next generation of leaders up for success, it’s crucial to focus on how to ensure a seamless transition and most importantly, how to continue enhancing the valuation of your firm in the process. Building a robust succession plan, one that not only preserves your legacy but also enhances your firm’s appeal and competitive edge, hinges on adopting appropriate technology and adhering to a set of strategic principles.
Financial advisors, take note: the key is adopting business models that can seamlessly accommodate growth without inflating costs. Scalability isn’t just about expansion – it’s a powerful driver of valuation.
Enter technology – your trusty companion in this journey. Imagine a data-driven platform that monitors and presents key performance metrics using the data you provide. A platform that would illustrate the potential for sustained growth and profitability, all while adhering to strict compliance regulations. This not only mitigates potential liabilities but also cements your firm’s reputation as a dependable partner.
Transfer Experiences
Wealth management is a personal business. Professionals navigate intimate relationships and connections with clients from a very early stage. Even post-pandemic when many aspects of the business world have gone virtual, advisors continue to prioritize face-to-face interaction to maintain the relationships they have built.
How can a founding advisor’s countless years of experience be passed along to the next generation without losing the heart and soul of the business? This is particularly a concern when the senior leadership of the firm is only sticking around for another six to 12 months after the successor steps in. The key is taking all of your corporate knowledge and embedding it into technology to create a transferable asset. If the data that you have on the history of the business is in good order, that could benefit your firm’s valuation and the core values of it can be preserved through information passed down generationally.
It’s More Than Just Data
The information that is passed along to the incoming advisor should be more than just numbers. In order to retain clients through this transformation, the successor needs to be knowledgeable on the history of the relationship with that client, what their values and goals are and what is important to them.
Many times, a succession plan will cover the financial succession of a firm, but not the succession of knowledge. Often, these personal details about the client and what motivates them are not written down and stored somewhere that can be easily accessed, instead they only exist in the memory of the individual who is passing the business down.
This means that the successor will have to rebuild the client-advisor relationship, creating a burden for clients and potentially deterring them from staying with the firm. It’s difficult and unrealistic to download 40 years’ worth of knowledge into a Word document and hope for the best. Instead, store as much information as possible in a transferable technology platform that organizes the information for you.
From there, take the time to meet with the new advisor taking over the account face-to-face to methodically discuss additional vital information, allowing them to absorb the experiences that predate them and capture new opportunities that this shift in leadership presents.
While implementing this protocol may seem arduous initially, once integrated into the firm’s structure, it creates a seamless process for passing down pertinent information. In the long run, it will eliminate vulnerability to errors and create an overall better experience for both advisors and their clients going through this transition. The outcome is a more likely prospect of retaining clients, a stable and loyal client base that bolsters consistent revenue streams and a reduced risk of abrupt client departures – all factors that may ultimately enhance your firm’s valuation.
Succession Planning: Your Firm’s Key To Success
Succession planning is not an optional task on your to-do list; it’s a vital component of operating a business that requires active management and planning throughout every phase of a business’ life. And it isn’t just about facilitating leadership transitions – it’s a strategic move that can significantly bolster the firm’s well-being and secure financial success.
Adrian Johnstone is the CEO of wealthtech firm Practifi.
