For Advisor Succession Plans to Work, Clients Need to Win

Succession planning is a critical phase in the life of financial advisory firms, and with 40% of Canada's financial advisors projected to retire in the next five to 10 years¹ it’s no surprise this topic has become a hotbed of discussion. Historically, much of the industry chatter surrounding succession planning is concentrated on valuation, negotiation, and the mechanics of deal-making. While these elements are undeniably important, focusing solely on these aspects can overlook a critical component: the client experience.

Succession planning is not just about transferring assets from one advisor to another; it’s about ensuring a smooth transition that prioritizes the clients' needs and expectations which can be a difficult objective to achieve when there are so many moving parts at play.

This article will delve into why the client experience should be at the forefront of advisor succession planning and explore three strategies to achieve a holistic, successful transition.

The foundation of successful succession planning

The true success of a transition can be measured by the outcomes for three key stakeholders: the retiring advisor, the successor, and most importantly, the client.

While the retiring advisor seeks a profitable and secured legacy, and the successor aims to integrate new assets and grow effectively, the client’s experience through this transition can be overlooked. Yet, without those clients, there would be no need for succession planning in the first place.

An ideal succession plan is not crafted merely by the seller and the successor. It requires a unified approach where both parties—along with their teams—work together to ensure a seamless client experience. This approach can mitigate several risks that advisor teams encounter through transition.

Risks of neglecting the client experience

Failure to prioritize the client experience during a transition can have several negative consequences:

• Brand damage: A poorly managed transition can harm the reputation of both the retiring advisor and their successor. When clients perceive the transition process as disorganized or indifferent, this can erode trust in the successor’s brand, and it can take a long time to shift this perception.
• Minimized growth: Transitions can create favourable conditions to receive referrals and uncover new assets – however, failing to ensure new clients are satisfied throughout the transition decreases the likelihood that successors will see this new growth.
• Lost assets: Clients who are unprepared for a transition or feel neglected throughout a transition are more likely to take their business elsewhere. These fractures can not only ripple to other key relationships but can undermine the value of the entire succession plan.

Three ways to create a smooth client experience

A transitioning client is more likely to remain with the chosen successor, if the successor can demonstrate that the new client experience will meet or exceed the same standards of service that the client is accustomed to.² To demonstrate their understanding, advisors can adopt the following strategies:

1. Create a long runway

Long before a transaction occurs, it's crucial to prepare for succession thoroughly. This involves:

• Preparing the team: Retiring and succeeding advisors should ensure that each team member involved in the transition is well-prepared and understands their role before, during the transition and beyond. Advisors can create buy-in on their teams by asking them to co-create a process for transitioning assets and assigning responsibilities accordingly. Transitions can be a stressful time, and creating a strong internal foundation will help to deliver a consistent client experience.
• Preparing the business: Advisors should take the time to revisit key aspects of their business, like core processes and segmentation, to ensure there are no current service gaps. This preparation helps address potential issues and minimize disruptions before they affect new and existing clients.
• Preparing clients: Communicate with clients well in advance of the transition. Advisors who know they are approaching retirement can begin mentioning these plans verbally in client meetings. When the successor is known, retiring advisors can begin describing the reasons why their successor was selected and how this change will benefit the client. Over time, the retiring advisor can introduce the successor in client meetings and begin incorporating them into other business activities, such as client events. Proactive communication helps build trust, create a sense of safety, and reduce uncertainty, while introducing clients to the successor in low-pressure environments allows the client to become accustomed to upcoming changes at a pace that is comfortable.

2. Make the transition measurable for clients

Transparency is key to ensuring a smooth client experience through transitions. To achieve this:

• Share timelines: Both advisors can share the responsibility of clearly communicating the timeline and expected milestones of the transition to clients.
• Define service standards: Establish and communicate new service standards to clients. Let them know what they can expect during and after the transition to ensure they feel supported throughout the process. A client service agreement is a great way to define these standards for the client.
• Prioritize the relationship: Creating a strong relationship with each client family is imperative. To accomplish this, succeeding advisors can ensure they take the time to ask thoughtful questions and actively listen, while sharing their personality, unique process, and advising style.
• Repapering as needed: If any documentation needs to be updated, or new forms need to be filled out, advisor teams should make sure these processes are efficient, follow a clear process, and that clients are well-informed as to why these changes are required. This will remove ambiguity and ensure that clients feel they are in good hands.

3. Measure and monitor client satisfaction

While creating a long runway and making the transition measurable for clients will go a long way towards ensuring a smooth transition, advisors cannot afford to make assumptions about how clients are feeling. Here are some ways advisors can measure and monitor client satisfaction through their transition and beyond:

• Ask for feedback: Rather than making assumptions, advisors should check in often with transitioning clients. Some questions to ask in the early stages of transitions can include:
  • Were there any hiccups you experienced during onboarding that we may have missed?
  • Is there anything our team has done well that you’d like to see continue?
  • What pace and method do you prefer to be communicated with?
• New growth: On a quarterly basis, measure how many new dollars clients have brought over (in addition to the AUM anticipated.) This is a key indicator of whether clients appreciate your process and see value in it.
• Client attrition: Note the number of clients or households who decided not to work with the succeeding advisor. While attrition is normal, keeping track of potential causes can reveal helpful patterns.
• Referrals: Clients who experience a smooth transition and who see the value of their new advising team are more likely to refer new business. Measuring new referrals through transition is a helpful metric to track, as it reflects consistency of client service.

Conclusion

A successful succession plan occurs when the interests of all parties are considered, but where the client’s experience is given the priority it deserves. Ensuring that clients have a positive experience during the transition not only safeguards the value of the succession plan, but also builds a solid foundation for future success.

Preparing thoroughly, communicating transparently, and viewing the transition as an opportunity rather than a mere transaction are key strategies to ensure that clients win in the succession planning process. After all, it is the clients who are the cornerstone of any advisory practice, and their satisfaction should be the ultimate goal.

To learn more about prioritizing the client experience during a succession plan, please reach out to your CI sales team.

¹ Source: Cerulli: 40% of Advisory Assets Will Transition in 10 Years https://www.cerulli.com/press-releases/40-of-advisory-assets-will-transition-in-10-years-according-to-cerulli
² Source: Barron’s Advisor Intelligence Report: How to Succeed in Succession Planning - Fall 2022 https://www.barrons.com/asset/barrons/pdf/BA_IntelRep_Fall2022_F.pdf