Make sure your succession plan works for your clients

5 February 2024
5 minute read
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Do you have a plan for how your clients’ need for expert financial advice will be met when you leave your business? A formal, well thought out succession plan will ensure your clients can continue to receive the advice they need from a trusted expert.

Whether you are drawing up a new succession plan or reviewing your existing plan, you need to pay attention to these six key points to ensure the plan is easy to implement, and that your clients experience a seamless transition.

1. Determine an accurate and realistic value

Succession isn’t all about money, but you are a business owner so you must put a realistic rand value to your business and receive that value when you sell the business. The exact amount is likely to be finalised near the succession date, but it is a good idea to work out the value of your business annually, from the moment you have a stable and secure client base. The starting point is revenue earned in the past year, which you can then compare to revenue earned in previous years. Stable income over time should ensure a higher value. Using technology and online records, dashboards and even a basic spreadsheet, this can be a quick exercise, and one that is easily updated!

As you care deeply for your clients and your business, you may not be best placed to objectively determine the final rand value, so it makes sense to get expert help with the final number, according to Francois du Toit, founder of PROpulsion, a business focused on empowering financial planning business owners. Du Toit hosted a PROpulsion presentation on succession at the end of 2023. You can ask your compliance officer, practice management specialist, lawyer, accountant or product provider for assistance with valuation.

2. Make sure your successor offers similar services

Your successor must offer services and products that are the same as yours to meet the needs of your clients. If you are an adviser focused on protection and risk, your successor should offer the same services. If your clients come to you for investment advice, your successor should offer investment advice. When you are working on your plan and looking for potential successors, keep in mind what services you offer your clients so you can identify a suitable candidate.

3. Maintain good product provider relationships

Your product provider is critical as they provide the products that meet your clients’ needs, and also advice and assistance to help you run your business, including all the tech, tools and online platforms. They are a critical component of a succession plan, and can provide assistance with valuation and succession options, as well as training and accreditation for your successor.

 Involve your product providers, let them know the details of your departure in advance, and make sure your successor has or develops relationships with your product providers.

4. Determine your timeline: gradual succession versus once off handovers

Deciding on a date of departure is essential, but also one of the most challenging aspects of succession plans. You can do it gradually, taking a few months to many years, or immediately on a set date.

Gradual handovers have an advantage because they offer a seamless transition for clients. However, long handovers, such as grooming a young adviser to take over in a few years, are challenging. Financial advisers can find it difficult to handover control, and successors don’t always stay the course, with many younger advisers often learning the ropes and then starting their own business.

Gradual succession plans also only work if handover is when handover was agreed to. Advisers can and do work long after the official or planned retirement age, which can frustrate a successor who was expecting to take over by a certain date. An alternative suggested for these situations in a Michael Kitces blog is to “sell” a portion of the business to a successor, and retain control over the rest.

Shorter handover over periods, such as six months, can be more practical, and give you and your successor clearer guidelines.

The alternative to gradual succession is an immediate, once-off handover. These are challenging, but can work if they are well managed beforehand, especially when it comes to client communications.

Think of a scenario where you set up your annual check-up with your GP of many years, and arrive to find they have retired and there is a new GP in place. With no prior warning, you are surprised, sceptical, and lack loyalty. But what if your GP let you know they were retiring and leaving their practice in capable hands? The chances are higher you would stay with the practice. It is the same for financial advisers’ clients who have to deal with a new adviser. Manage communication well, have up to date and comprehensive records and CRM systems, and once off handovers can work.

5. Handover client relationships in full

Technology and digitalisation has ensured that successors can have easy and quick access to client details and information via CRMs, digital records and product provider platforms. This will reduce the time spent handing over, but may not include all the nuances good client relationships are built on, such as your interpersonal relationships with your clients.

Financial advisers are confidantes of private and personal details, trust has built up over years, and relationships are personal as well as professional. Your successor needs to know how you work and engage with your clients in practise so they can ensure your clients for life become their clients for life and don’t move to another adviser.

6. Make sure you have a retirement plan

Just as you advise your clients to have a retirement plan, make sure you have one in place. Your retirement plan can include selling your business, as well as other retirement savings products. Keep in mind that diversification is one of the key factors in investment success, and use this in your retirement planning by relying on different sources of income – not just the sale of your business. Also keep in mind that values and payment terms can vary, and may not always be what you were relying on for your retirement.

Final thoughts

Succession plans are all about clients, ensuring their needs will be met by another adviser, “as good as or better than you,” says Du Toit. “Research has shown that a well-documented plan will add value to your business.” Reason enough to complete and review your succession plan in the coming months, to make sure you and your clients are well cared for.

The blog contains opinionated information and may not be interpreted to guarantee certain results.

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