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Why You Need A Business Succession Plan, Now

Many advisors hesitate to create a succession plan for their business, even though they are worried about what will happen to that business after they are gone.

In fact, according to some estimates, most advisors do not have a formal succession plan that details how and when they intend to exit the business. This situation is startling, considering the fact that, according to some studies, about 12,000 to 16,000 advisors are expected to retire each year over the next 10 to 12 years.

To help advisors take the first steps in creating their succession plans, we recently spoke with NAIFA member Michael DiCenso, who shared the business case for creating a formal succession plan and critical steps for implementation.


NAIFA: Why is it important for agents and advisors to have a written succession plan?


Michael DiCenso: Currently, only 5 percent of agents and advisors have a written succession plan. Advisors need to have a plan in place to ensure the long-term success of their companies. A succession plan is also a vehicle that can be used to monetize the business and provide greater benefits, services and deliverables to clients.


NAIFA: What different types of succession plans are available to agents and advisors?


DiCenso: Succession planning is different for every firm. It is based on the wants, needs and desires of the owner or owners. Some owners will want to stay involved, but in a reduced capacity. Some will not want to change their duties and responsibilities and others will want to walk away from the business completely. 

The options for advisors include:

[1] Hiring someone to transition the firm to. This can be difficult due to the lack of new blood that is entering our industry.

[2] A partnership/merger/acquisition. This is finding a firm that will enable you to grow your business and offer your clients greater services and resources, while allowing you to back away from areas of the business you do not want to be involved in, going forward.

A partnership allows the sharing of revenues and resources.

A merger allows some portion of monetization, while allowing the owner to stay involved over an agreed-upon period, with responsibilities remaining in place for the seller to perform (i.e., sales, service, being the face of the firm, doing away with management, business operations or records).

An acquisition allows an owner to fully cash out of the business and move on to retirement or to pursue other opportunities.


NAIFA: What steps can advisors take to grow and monetize their business as they prepare to exit?


DiCenso: There are many steps they can take. For example, the process could be first to find a partner who will provide some monetization and growth opportunities. Over time, this partnership could move to a merger or an acquisition. But remember that every situation and owner is unique, and the right solution for each firm will differ.


NAIFA: Share a few ways advisors can begin to create a succession plan. What should be their first steps?


DiCenso: The first step is for the advisors to truly understand all the metrics of their business and solidify the practice-management process in the following ways:


» Assessment of the revenues by niche, services offered and delivery.


» Assessment of profitability by niche, services offered and delivery.


» Assessment of resources/staff and efficiency.


» Revenues by staff by service offering.


» Profits by staff by service offering.

• Revenue per client.

• Profit per client.


» Overhead as a percentage of revenues/profits.


» Assessment of technology and efficiency.


What I consistently see occurring in our industry is that owners are working in the business instead of on the business. In other words, they are selling to and servicing their clients, but they are spending little time strategizing, growing and focusing on the parts of their business that drive the most revenues and profits. They spend little to no time planning for their successful growth and succession. Most advisors are good salespeople and service providers. As a result, those are the areas to which they gravitate in their business rather than to running, managing and operating their business.



Ayo Mseka is editor-in-chief of Advisor Today, the official publication of the National Association of Insurance and Financial Advisors. Contact her at [email protected] .

Michael DiCenso is a nationally recognized speaker and expert in the retirement services and wealth-management industry. Michael may be contacted at [email protected] .

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