Handing the Baton to Your Successor? Transition Like a Champion

If you’ve watched an Olympic relay race, you know that the handoffs can mean the difference between winning the gold or disqualification. Similarly, financial professionals should understand how much is at stake when transitioning their practice. For guidance on how to plan for succession, T. Rowe Price’s approach to portfolio manager (PM) transitions offers valuable insight. 

There are three compelling reasons to focus on ensuring a successful transition:

1. To continue with a new financial professional, clients must believe they will continue receiving excellent service—and they won’t hesitate to leave if they notice standards dropping.

2. You care deeply about the ongoing stewardship of your clients’ assets and want to see them continue to be managed well. 

3. You may receive residual commissions as part of the practice’s sale, so maintaining assets under management may be crucial for your income in retirement.

Avoiding the potential disruption that can accompany PM transitions is critical for prioritizing clients’ long-term interests and preserving the ability to pursue superior risk-adjusted returns. Our transition process, developed and refined over eight decades, is complemented by the strength of our research platform and the expertise of our investment professionals. PM skill and research expertise are the twin pillars of our investment success. Every incoming PM draws from the work of their talented predecessor to fuel future success.

T. Rowe Price’s unique approach to transition planning offers insight for financial professionals mapping out their succession:

• We recruit professionals from top business school programs and shape their research process and investment style as they work alongside our PMs. We approach talent development the same way we think about the companies we invest in—by remaining patient when we see potential and drawing on decades of experience to make decisions.
• We regularly identify potential successors. Usually, we know well in advance when a PM is retiring, so the incoming PM has a considerable amount of time to fill any knowledge gaps before taking over. We also have time for the outgoing PM to introduce their replacement to clients.
• We ensure that unexpected departures are managed in a controlled and thoughtful manner by requiring each strategy to have a predetermined succession plan, reviewed annually by an investment steering committee.

Due to this thorough approach, third-party rating agencies and investment consultants consistently review our transitions positively.

• Drawing on internal talent is the best approach because of their familiarity with products and clients.
• Communicating a transition is always preferable to surprising a client. They should feel as if nothing has changed when the new person takes over.
• Having a contingency plan is essential. Just as you would when executing a living will, specify procedures (e.g., identify a successor) should something happen to you.

Teamwork is at the heart of our approach to transition planning. We cultivate deep bench strength so clients can expect the same repeatable experience no matter who manages their money. 

There’s a solid argument for financial professionals to operate similarly. A team-based approach that allows any financial professional to step in offers existing and prospective clients peace of mind.