Overcome 5 Hurdles of 401k Firm Succession Planning: 2019 Fi360 Conference

401k, retirement, succession, Fi360

How to handle 'em.

“You might be the point person in the relationship, but the client should feel like they’re taking care of by the firm,” Michael Searcy noted Friday morning at the Fi360 annual conference in Nashville. “If you’re in a meeting and the client is looking around, that’s good. If the client is focused only on you that’s bad. You’ll have the issues that come with succession risk.”

Searcy, president and CEO of Searcy Financial Services, shared what he’s labeled the top five hurdles that advisors make when planning for a proper exit.

Not surprisingly, when developing a succession plan or preparing for the sale of a financial firm, “advisors may sometimes make rash decisions or fail to consider factors that could be beneficial to them,” he said.

Hurdle No. 1 – Not starting soon enough

Mistakes happen, mentoring takes time and financial transactions may (and sometimes should) be staggered.

Hurdle No. 2 – Under or overvaluing the company

“Sellers want more than the firm is worth, buyers want to pay less than the firm is worth. It’s just the nature of a transaction.”

For this reason, third-party valuations are therefore critical. They serve as a basis for applying minority discounts and help avoid bargain sales or excessive overpayment.

They also reduce contingency pricing, give evidence of growth for the next generation and forces principals to stay organized and keep great records. And an independent resource is validating.

Hurdle No. 3 – Founder and/or successor gets in their own way

Issues associated with making it difficult for oneself include a lack of clarity (Steven Covey’s “start with the end in mind”), trustworthiness or work ethic, or they might have unreasonable expectations due to their scope of experience, ability, and knowledge.

“We have succession in mind when we hire, and we show the track to partnership,” Searcy says.

Hurdle No. 4 – Partnership agreement considerations

Items to consider include pre- and postnuptial agreements in case of partner divorces, covenants not to compete, penalties for leaving, death/disability financing and documentation of the process.

Hurdle No. 5 – Lack of transparency in announcing your plan

“Avoid the elephant in the room and tell your employees, clients, and prospects about the succession plan,” he concluded. “They’ll appreciate you for it and clients will feel taken care of by the firm.”

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