Investment Management Succession Planning for the DIYers

You are capable of managing your own investments, but if you can’t, who will take your place? We explain the value of an investment management succession plan.

Over the years, Bradley, Foster & Sargent has received countless requests to discuss potential investment advisory relationships. In our experience, a significant number of these inquiries are made by “Do-It-Yourselfers,” or DIYers. DIYers are individuals who currently manage their own investments but also recognize the need for a trustworthy and competent partner to whom they can one day hand over control of their investments when they can no longer manage things on their own.

Many DIYers are financially sophisticated and entirely capable of managing their own investments. The DIYer is essentially the CEO of the family enterprise, usually
working alone and assuming sole responsibility for all strategy, structure, and financial instrument decisions. Most DIYers prefer this structure for now; however, they understand the risks of going it alone. The desire to pass the reins to a professional is often spurred by a combination of time pressures, age, waning desire,
information access, and other factors.

Replacing oneself as the steward of one’s own investments under conditions of duress, health-related or otherwise, can be a complicated and challenging process. We have found that an approach that gradually shifts responsibilities to a professional partner over time is an effective solution. This process can begin with the DIYer and their eventual successor analyzing all aspects of the family CEO’s financial management and reporting responsibilities, and highlighting specific areas where the partner can add the most short-term value.

Reviewing their financial situation and identifying opportunities for a value-added professional partnership helps reassure the DIYer that the potential successor
understands their goals and processes, which in turn lays the foundation for a trusted and collaborative relationship. For example, some DIYers we have encountered prefer to continue managing a simple municipal high-grade fixed income ladder, while passing off the more intensive assignments — like managing the equity program — to their successor, keeping the whole framework in focus and under discussion.

When establishing the foundation for a collaborative and successful relationship, there are no limits to how the bricks can be laid, as long as they satisfy the family and the family CEO’s short-term and long-term investment objectives. Having a co-pilot in the cockpit who clearly understands the family’s objectives, communicates effectively, and is comfortable working both together and separately gives the family CEO ample time to evaluate whether the advisor is worthy of taking up the family’s financial mantle in the future. A low-risk evaluation, coupled with a strategy for incremental adjustments over time, is a good way to begin the succession process — a process that ultimately becomes a necessity for us all.