A Conversation About Your Future

As the owner of a broker-dealer firm, do you have a succession plan in place?

By Lana Calton, Managing Director – Head of HilltopSecurities Clearing Services

Not long ago, I had a conversation with the owner of a broker-dealer firm who was facing a critical point in his life. Now in his early 70s, he’d spent years building a successful business. He had several seasoned advisors working for him, and they enjoyed working together as a tight, cohesive group. But with a shift in established business practices looming on the horizon, driven by regulatory and industry influences, he realized he was going to have to make some tough choices. And, none of them felt quite right. Because he also realized, that after years of managing the day-to-day realities of his business, he hadn’t taken the time to think about the future. His future. And, because of that, those tough choices he was facing were actually pretty limited.

Does this story sound familiar? With so many changes happening in the industry, there are many owners in the same boat. And, unless you have a succession plan in place, that boat may be springing a leak. In a relationship-driven business such as ours, most broker-dealer firms have a strong central personality at the core of the business — usually the owner. That personality has not only been at the center of key relationships, but the owner has also built trust and that’s a powerful force that is hard to duplicate. Trust is developed over time, with one interaction, one phone call, one smart, fair decision at a time. Reps and advisors are loyal because they know there is someone who always has their back. What happens when that central figure wants to retire, sell or take a smaller, more limited role in the firm?

Succession planning is a complicated issue, but it starts with a simple desire. What do you want your future to be? And, even more importantly, when do you want that future to begin? Once you establish that timeline you can work back from there and begin to construct a well-reasoned plan for exiting your firm.

Everyone’s personal situation is different, so you’ll want to define a path that makes sense for you. But, in general, there are a few pieces of advice I can offer that have been shaped by what I’ve experienced over the years.

Are you passing on your business to the next generation? Start grooming people early. Often, there is a family member that the owner thinks will naturally take over the business. Let’s say it’s a daughter who is an advisor in the firm. However, she’s never had the role of a leader or manager. It’s important to start positioning this person early by training them in their future role and elevating them within the company. Identifying your successor is one thing, but you also must adequately position them for success well in advance of your exit to establish credibility and authority — and to guarantee a smooth and seamless transition. This also applies if you’ve arranged an ownership transfer with an internal employee. In your transition plan, it may be wise to move this individual into their future role while you are still active in the business, which can send positive signals of stability and continuity to both employees and clients.

Are you planning on selling your business to another party? Start forming new relationships to extend your legacy. If there is no one inside your business that you can leave it to or sell it to, make sure you have been diligent about forming new relationships with individuals or entities that have the same values you do. You may be planning your exit strategy, but remember, you’ll be leaving valued and trusted employees and advisors behind. The surest way to make sure your legacy succeeds you is to have identified potential buyers with the same standards and principles you built your business around. If this is important to you, build these considerations into how you screen for prospects.

When it comes to succession planning, the only incorrect approach is to not do it at all. From my viewpoint, the important thing is to simply start. Start the conversation. Start the planning. Start thinking about how you want to live your life after you exit your business — and start thinking about what it is you want to leave behind.

Hilltop Securities Inc. (HTS) is a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Material presented herein is for informational use only and reflects the views of only the author. This information may not be duplicated or redistributed without prior consent of HTS, and distribution or publication of this material does not represent a solicitation to complete a financial transaction with the firm. Though information was prepared from sources believed reliable, HTS, does not guarantee its accuracy or completeness. Securities offered by HTS (1) are not insured by the FDIC (Federal Deposit Insurance Corporation) or by any other federal government agency; (2) are not bank deposits; (3) are not guaranteed by any bank or bank affiliate; and (4) may lose value. HTS is a wholly owned subsidiary of Hilltop Holdings Inc. (NYSE: HTH) located at 1201 Elm Street, Suite 3500, Dallas, Texas 75270, (214) 859-1800. Past performance is no guarantee of future results.