Hits and Misses Been There, Done that Producers Share Lessons learned from Their Practice Transitions
Succession planning is one of the biggest topics in the industry today, yet it seems to be shrouded in mystery. When should producers begin to worry about this? How should it be done? While it’s such an important issue, there seems to be a shortage of advice from those who have successfully done it.
The 2012 Business Continuation Task Force accepted the challenge and tracked down several MDRT members who made it through the process. They brought back their stories to share the lessons these individuals have learned: what worked, what didn’t and what they wish they had known going in. One of the most-recommended pieces of advice? Start early. For the rest, read on.
Choose Your Successor Carefully
James E. Rogers, CLU, CFP, 2008 MDRT President and a 39-year member from Vancouver, British Columbia, Canada, spent his career building a business of nearly 50 people, including 18 advisors. When it came time to begin planning his departure, he settled on two advisors from within his practice who would buy out his assets — one in cash and the other over a 10-year period. Rogers urges others to think carefully about who they choose to take the reins.
His recommendation is to choose — for the clients’ sake — someone with a similar style to your own. Rogers also suggests bowing out gracefully so clients don’t feel abandoned. He maintained communication with some of his clients for five years before fully turning them over to his successors. That
being said, Rogers warns no matter how wellexecuted your plan, you will lose some clients, so it is best to acknowledge and accept this reality. After surviving cancer, 27-year MDRT member Patricia L. Krarup, MSFS, ChFC, of Janesville, Wisconsin, decided to put a value on her business for estate tax purposes. With this foundation set, she was well-positioned about 15 years later when she was ready to consider merging with another advisor who could eventually take over her practice. Krarup found her match in another MDRT member — MDRT Secretary Brian D. Heckert, CLU, ChFC, of Nashville, Illinois — and the two recently entered into a three-year buyout process. “The best decision was choosing someone I know and trust,” she said. “I almost merged with someone (else) twice, but just never really felt I could trust the person with my clients.”
Specify the Seller’s Timeline
John J. Demboski, CFP, now an eight-year MDRT member, was brought into this profession several years ago by his mentor, 40-year MDRT member James M. Chapman, CFP. Two years ago, the two men from Santa Barbara, California, completed the succession planning process, and Demboski purchased the practice Chapman founded in 1969. Eleven-year MDRT member Clay Gillespie, CFP, CIM, of Vancouver, Canada, one of the buyers of Rogers’ business, echoed the need for a transition time for clients to adjust to the new advisor so they are not subject to culture shock. One of his biggest takeaways for this transition and others he’s been part of is to incentivise the seller to stay onboard through the transition and for a specified amount of time afterward. “It makes things go much more smoothly, and there is substantially less risk of the deal failing if the seller is present and involved,” Gillespie said.
Seek Outside Help
Demboski credits the decision to stay flexible throughout the process as a big factor in their transition’s success. Part of staying flexible, he said, was knowing when to find and use professional third-party help. “The process can move from rational to emotional, and it was invaluable to have someone focused on the ultimate goal of getting this done,” Demboski said. “It’s easy to get frustrated and get bogged down in details while losing sight of the big picture.”
Commit to the Process
With a couple of false starts under his belt, Thomas E. Fowler, CLU, LUTCF, realises it takes a lot of time and consideration to develop a meaningful relationship and transition your practice, and there’s no way to shortcut the process. The 23-year MDRT member from Bellevue, Washington, tried twice to mentor a successor for his practice, but neither relationship worked out. He attributes this to the lack of mutual commitment on the part of the potential successor, as well as not enough commitment on his part to the process. Specifically, he said, he wasn’t clear enough about how he wanted the process to go and what the ultimate result should be.
Though he’s invested a lot of time already with no successor currently in place, he is committed to finding the right person to bring in and develop, rather than putting his business up for sale. Now, having learned from failed experiences, he is thinking even bigger. Rather than simply finding an eventual successor, he is prepared to use this opportunity to bring someone in with differing expertise so they can help him expand the business into new areas. i
This article was reprinted with permission from the Million Dollar Round Table’s Round the Table magazine. For more information about MDRT membership, visit www.joinmdrt.org.