Can Planning for Succession Give Your Investment Management Firm an Unfair Advantage?

Practice Management

What could possibly go wrong?  Drivers sprint to their cars to start the 12 hour endurance race at Sebring, 1963 (photo from

One refrain we often hear from clients is how different they are from other investment management firms. We agree. Asset managers have a lot in common, but we see a huge variety of personalities, investment approaches, business plans, marketing activities, compensation models, etc.  In short, every firm has a unique culture, just like families.

Planning for succession builds careers for staff, retirements for ownership, and continuity of service for clients.  In the process, it contributes greatly to the value of an investment management firm.

My Dad, Sports Car Racing, and Succession Planning

Over this past Father’s Day weekend I was talking with my dad and, as is usual for us, the subject of auto racing came up.  My interest in all things with wheels comes from my father, who spent his youth reading about cars, working on cars, and attending car races.  Dad grew up near Talladega, Alabama in the 1940s and 50s, but he was less interested in what is now known as NASCAR than he was sports car racing. In the South, one of the major sports car venues then and now is Sebring Raceway in central Florida.  Sebring is a general aviation airport south of Orlando and east of Tampa that closes every March to connect a series of runways and taxiways into a five mile racing circuit.  The big event at Sebring is the 12-hour endurance race, which my dad first attended in 1963 before he joined the army.  Dad first took me to Sebring in 1979, and we’ve been back periodically since then.

I was thinking of a blogpost about planning for succession, as distinct from succession planning, while talking to my dad about Sebring.  Planning for succession is different than succession planning, in the sense that “succession planning” implies a project with a beginning, middle, and end.  Planning for succession implies a business model and a firm culture built around the realization that, while corporations have potentially unlimited lives, the humans who work at them do not.

Succession Planning Is Not Planning for Succession

Planning for succession is not an event, it’s a cultural thread.  My father shared his knowledge and interest in auto sports with me from an early age.  If Dad tried to download his lifelong passion for sports car racing to me today, it probably wouldn’t stick.  If you go to Sebring Raceway now, unfortunately, it looks like my upbringing in motorsports was an outlier.  Most of the infield crowd are the same fans who went there with my dad in the 1960s; they were college-age then, and now they’re retired.  For lack of succession in the fan base, the future of sports car racing doesn’t look so good.

To be clear, Mercer Capital is a valuation firm, not a succession planning firm.  Yet we are around enough succession planning to have observed what works and what doesn’t.  It seems that most succession planning is done when the culture of the firm is built around one generation of leadership with little thought for the future.  At some point, that generation realizes they won’t be in the driver’s seat forever, someone has to take over their clients, and they would like to augment their retirement by cashing out their equity.  Succession planning consultants are brought in to identify a new generation of leaders and spell out terms of ownership transition, or suggest that the firm be sold.  This is not to say that every change of control sale signifies a failure to plan for succession, but we do see a correlation.  Given the steady increase in RIA transactions, it appears that planning for succession at investment management firms is about as common as seeing millennials at Sebring.

If you’re wondering how this applies to your investment management firm, ask yourself these questions:

  • Do you plan for succession at your firm, or are you working on a succession plan?
  • Is succession part of your firm’s culture, or is it something you need to get around to doing?
  • Do you hire people who will one day take over for you, or just to work for you?
  • Do you apprentice your staff, or just leverage them?
  • Is your buy-sell agreement written to ensure a smooth transition of ownership at the right time, or does it mostly protect existing partners?
  • Are your clients planning to stay with your firm after you’ve retired, or will they be “in play” once you’re gone?

Planning for succession builds careers for staff, retirements for ownership, and continuity of service for clients.  In the process, it contributes greatly to the value of an investment management firm.


I was raised on sports car racing, but some families pass along culture on horseback, while others literally “show their kids the ropes” on sailboats.  Most families instinctively model behavior and responsibility such that kids grow up to be parents and continue the cycle – otherwise, none of us would be here today.  Planning for succession is built into human DNA.  The question is this: is planning for succession built into your firm’s DNA?

Planning for succession (and succession planning) often involves valuation. If you’d like to discuss your firm’s situation and our experience helping other investment management firms with succession, give us a call.