For financial advisors who intend to make the transition into retirement slowly by cutting back on hours at the office, creating a structured business environment can be as important as deciding on a successor.
"We need to think a little more about how [the succession plan will work], and that's where we start to talk about structure," said Robert Reid, director and principal of London, U.K.-based Syndaxi Chartered Financial Planners U.K., who spoke at the Canadian Institute of Financial Planners (CIFPs) annual national conference in Ottawa on Wednesday.
Reid offered the following tips to help advisors step back from their businesses' day-to-day operations:
1. Act like a chairman or chairwoman
Reid recommends that advisors act as their business's chairman or chairwoman rather than as CEO. Taking this approach allows the advisor to maintain a supervisory role in the company, which will likely be of comfort to clients during the transition.
To do this successfully, however, the advisor, the successor and staff must be clear about the division of responsibilities. For example, as the chairman or chairwoman, advisors should focus on the business's strategy. The day-to-day operations, meanwhile, should be left to the rest of the team.
"Strategic decisions always involve [the advisor]," Reid said, "because, ultimately, [the advisor] still holds the bulk of the value of the business and, therefore, deserves to be consulted."
2. Learn how to delegate
Advisors must be comfortable in delegating tasks to team members if they expect any succession plan to work.
"One of the biggest disasters with someone handing over and delegating [tasks] is people who don't really delegate," Reid said.
For Reid, delegating means feeling comfortable letting team members complete assigned tasks and waiting until they've completed something to check it. Continually checking in will only confuse the advisor's successor and the rest of the staff.
"If nothing else, it's going to make [the successor and staff] feel that nothing has changed," Reid said, "and the most important thing in this is that you get across that something has fundamentally changed in the business."
3. Create a (brief) business plan
A documented business plan is a key component of a well-structured transition. However, it must be readable.
A good plan will cover all the important parts of the business on one page. Writing a 42-page thesis on the business will only ensure that the document is never read.
"It's just like a really bad novel," Reid said, "you're flipping to the back to see if this actually gets any better."
4. Create a centralized database
Store important documents in a centralized and online database to make sure the successor, team members — and even the advisor — can find important information from any location.
This database can include important client-related information as well as reference materials, such as documents explaining operational decisions of the business. By creating this database, the advisor will be passing on institutional knowledge of the business, which will ultimately help maintain continuity in the practice and result in a successful transition.