As a financial adviser, your job is to build generational wealth for your clients. But you should also consider generational wealth planning for your own business. Succession planning is a part of that. A succession plan ensures you will leave your business and clients in capable hands if you have to step aside for any reason. While this requires some preparation, it doesn’t have to be too complicated. Let’s take a moment to unpack succession planning.
Why succession planning is a must-have
Succession planning quite simply addresses what happens to your business and your clients when you leave the business permanently either due to a career or life change (such as moving to another country), retirement or death. Although these may seem far in the future, as a financial adviser you are always thinking about future-proofing for your clients, so why not be prepared and draw up your own succession plan as soon as possible?
Three reasons why you need a succession plan
- The General Code of Conduct states that advisers must act in the best interests of their clients. It goes without saying that it is in your clients’ best interests to have uninterrupted and trusted advice.
- Your clients need peace of mind. They need to know that their needs will be taken care of if you are no longer in business, for whatever reason.
- You need peace of mind. Your job is to help your clients build and protect generational wealth, but you also need a plan to build and protect generational wealth for your family, as well as ensure that you have a secure future and comfortable retirement.
A succession plan is not a business continuity plan
A succession plan is premised on you leaving your brokerage permanently. This is very different to a business continuity plan, which lays out contingency arrangements for a temporary leave of absence or temporary closure of your business due to civil unrest, illness or loadshedding etc.
What are your succession plan options?
There are many variations on how you can exit the business, but the most common are:
- Sell your business
- Mentor a new, younger adviser to take over
- Hand your business over to a trusted colleague
Your choice depends on your individual circumstances and needs.
Selling your business can be completed relatively quickly, and there are businesses that will either buy or find a suitable buyer for your brokerage, such as GCI and SFP Wealth. They will also help you value your business,
If you are mentoring a younger adviser or handing your business over to a trusted colleague, you can take your time with the handover and introduce clients to the new adviser and/or team over a number of months or years. This is reassuring for clients as when the time comes for you to leave, the handover is seamless.
Key consideration: What is your business worth?
Every business, from a one-person advisory to a multinational, has assets that have a value. When those assets change hands, the majority of businesses will charge a fee – or sale price. As an adviser, you have several assets such as a property you own or any office and electronic equipment. These assets are fairly easy to value, and sell if you wish to. However, your main asset is your client base, which you have built up over the years and that generates income.
Determining the sale price of this income is not an exact science, but for a start, you need to quantify the current value – the annual income (or averaged over a number of years such as three or five), and discount it at a rate, to take into account attrition, to determine the future value. When you and the selling party agree on this value, you can then decide on a payment arrangement. Alternatively, you may agree to participate in future profits from your clients at a certain percentage and be paid this amount regularly, such as quarterly or annually.
BlueChip digital has a series of articles in their practice management section on how to value your practice you can read for more information and ideas.
Succession planning in practise
Melissa Dyer, CFP, co MD at Harbour Wealth, shares her business’s succession plans.
“At Harbour Wealth our guiding principle is always ‘better outcomes for our clients.’ This obviously rings true for our succession planning as well. Our clients need to be looked after if one of us is no longer here.
“We are lucky that we have invested heavily into our people and our culture, therefore it doesn’t matter which member of our team you engage with, you will receive the same sound financial advice. We all attend regular sessions where we constantly upskill ourselves to meet the ever-changing needs of our clients and the industry.
“We have also successfully implemented our Grad Programme, where we fully integrate graduates into all aspects of our business, which provides further depth to our team.
“We fully embrace Fintech, which provides up to date financial planning scenarios for our clients. If a member of our team retired, passed away or resigned, the client’s dashboard would continue, and a new adviser would be assigned.”
What makes for a good succession plan?
The details of your succession plan will depend on whether you are selling or handing over your business to a mentee or colleague. For example, your formal agreement for a sale will be different to a formal agreement for an internal handover. Regardless of your choice, the following factors must be taken into consideration:
A good fit with the business and clients. Clients want to know they will receive similar care and service from their new adviser. Your successor doesn’t have to be a ‘mini-me’, but they should offer a similar level of service and advice.
Client communication. Clients want to know what is happening. They need to know they are top of mind, and that they will be taken care of in future. And many will want to wish you well for your future.
Staff communication. Your staff need to know what is happening, who will be doing what, and also, to wish you well.
Service provider communication. Your product providers, service providers such as compliance and IT partners, industry associations, banks and the regulator all need to know of the changes in your business. The necessary registrations and deregistrations, such as a key individual, must also be planned for.
A definite timeline. This is especially important if you are handing over to a trusted colleague or mentee.
A formal agreement. Formal agreements should be in place no matter what the succession arrangement – not only buy and sell. They should specify timelines and details of required registrations, accreditations, and any de-registrations.
A formal agreement for a sale should include details of the value of the brokerage (at a specific date), selling price and payment details, as well as options if payments are not made when due. Legal advice on these agreements is a must.
Formal agreements for a handover to mentee or colleague must include the timeline and a final handover date, as well as any changes to salary or commissions in the event of a gradual handover. You may also want to include details on any name changes to the brokerage.
Who can help you with your succession planning?
- Your compliance officer or partner
- A lawyer or business adviser
- Industry associations such as the Financial Intermediaries Association
- Industry colleagues
Plan today, don’t delay
Many small businesses don’t plan for succession. For example, 76% of family businesses in Africa have no formal succession plan according to the PwC Africa Family Business Survey 2021, potentially leaving many clients unserviced. Draw up your succession plan and this won’t happen to your clients, and you can enjoy new adventures in your golden years!