Why Internal Succession Is So Hard to Achieve – And Why You Need to Commit Now If It’s Your Chosen Exit Path
By Joe Millott, Partner, Financial Services
For many wealth management firms, the idea of passing the torch internally is deeply appealing. It preserves the culture, rewards long-time colleagues, and keeps client relationships stable. But here’s the hard truth: while internal succession is often the preferred choice, it is also the most difficult path to execute successfully.
The challenge doesn’t lie in a lack of desire. Most firm leaders genuinely want to see their teams take over. The difficulty stems from the mechanics of ownership transfer, the long timelines required to get it right, and the natural reluctance to dilute equity until it’s too late. Without decisive action today, even firms with the best intentions can find themselves boxed into suboptimal outcomes tomorrow.
The Lesson From John Nicola: Value Over Control
John Nicola, founder of Nicola Wealth, offers perhaps the best example of how pushing equity down early and often can transform a firm’s trajectory. In a recent reflection on his career, he noted:
“While I own less than 40 per cent of the company today, my equity is worth far more than it ever was before.”
The key takeaway is that ownership isn’t about clinging to the largest possible slice of the pie -it’s about making the pie bigger by ensuring your best people are incentivized to stay, grow, and lead. Nicola’s foresight in broadening ownership didn’t weaken his position. It made his business stronger, more sustainable, and vastly more valuable.
The Regret of Tony Arrell: Waiting Too Long
Contrast that with Tony Arrell, co-founder of Burgundy Asset Management. In a candid Globe and Mail reflection, he admitted that one of his biggest mistakes was failing to push equity down early enough. That hesitation ultimately limited Burgundy’s ability to execute an internal handoff and forced the firm into a sale.
Arrell’s reflection should resonate with every founder who believes they can wait “just a little longer” before inviting younger leaders into the ownership circle. By the time succession becomes urgent, it’s already too late.
A Confidential Case Study: When Alignment Breaks Down
There are also cautionary tales of firms caught in the middle. One mid-sized Canadian private wealth firm, with billions under management and an employee-ownership structure, appeared well-positioned for internal succession or an eventual external sale.
But ownership was fragmented. Some shareholders sought liquidity, while others resisted. The result has been years of stalled succession planning, multiple aborted transactions, and – at the time of writing – an expired LOI with the most recent bidder. Market participants now approach the firm warily, knowing that without alignment among owners, a deal is unlikely to stick.
This is the other great danger of deferring ownership planning: the longer you wait, the harder it is to maintain unity of purpose among your partners. When founders and next-generation shareholders have competing objectives, external buyers sense it immediately – and walk away.
Why Internal Succession Is So Hard
The stories above point to three recurring truths about internal succession:
- It requires capital that insiders may not have. Younger partners often lack the liquidity to buy in meaningfully unless the firm designs long-term, structured equity pathways.
- It demands dilution earlier than most founders are comfortable with. Founders often delay because they fear “giving up too much.” But value creation accelerates once equity is spread across those most responsible for growth.
- It takes a long runway. Proper internal succession is a decade-long process. Waiting until the last three to five years before retirement almost guarantees failure.
Why You Need to Commit Now
If internal succession is truly your chosen exit path, you cannot afford half measures. You need to decide – today – to start allocating equity in a disciplined, systematic way. That means:
- Building multi-year buy-in programs for key employees.
- Accepting near-term dilution in exchange for long-term enterprise value.
- Establishing governance and decision-making structures that outlast the founder.
This is not about generosity. It’s about self-interest. As Nicola’s story proves, the founder who shares ownership often ends up wealthier than the one who hoards it. And as Arrell’s story shows, waiting too long can close the door on internal succession entirely.
The Bottom Line
Internal succession remains the most desirable path for many advisory firms – but it is also the path of greatest discipline. You cannot improvise it at the eleventh hour. You cannot paper over misaligned ownership once it hardens.
The choice is binary: either commit now, with clarity and courage, or risk finding yourself forced into an external sale you never wanted or planned for.
This article was originally published on Joe’s Linkedin Newsletter, The Future of Wealth Management. For more insights like this one, subscribe to the newsletter here.
Interested in reading more on this topic? Check out Joe’s recent articles for the Globe and Mail: