Preparation and attention to detail can go a long way in making succession plans optimal for both the founders and those taking over the firm, Jay Hummel, managing director of Envestnet, and Chris Winn, chief executive of Advisor Assist, tell InvestmentNews.
For starters, the agreement should spell out rules of engagement in case either party is unhappy with how things pan out, Hummel tells the publication.
Winn says it’s important to establish which circumstances would make succession revocable and to define points when the deal could be called off.
It’s also important to establish a shared vision for the future, with some detail as to the types of clients the firm will serve, Hummel says.
In addition, the succession plan should have a clear definition of ownership, including how to buy into the firm in the future, as well as the rights and responsibilities that come with it, he tells InvestmentNews.
It’s also necessary to define the roles of the people involved and how they will change after the succession, starting with the senior brass, he says.
To ensure the deal can’t be contested, the succession agreement needs to align with the operating agreement of the firm, Winn says. And to prevent a founder getting bored in retirement after selling the practice — and potentially referring business elsewhere as a result — successors should consider having some small role for them, such as a part-time employee or an advocate, he tells InvestmentNews.