Buy online
Succession plans are a must, not only for regulation purposes but also to increase the value of your business. A Citywire poll found that 77% of advisers are “working” on their succession plans, so we sat down with Kobus Wentzel, Group Distribution Executive for 1Life Insurance and Clientèle, to learn more about the key components of a robust succession plan.
Succession planning and regulation
The FAIS General Code of Conduct stipulates that all FSPs must have a continuity plan in place for when an adviser cannot service their clients. In practice, this is taken to mean a formal documented plan covering events that include an adviser being unavailable due to leave, sickness, retirement and death. In short, if something were to happen to you or any representative or Key Individual (KI) in the business, or if you left the business, you need a plan so that your clients have access to services from a professional FSP, similar to advice services you offered.
Ryno Volschenk, Masthead JHB Regional Manager, says continuity and succession plans are an operational ability requirement, a minimum standard that all FSPs must meet, as well as a TCF requirement. Regulations aside, he also mentioned that it can happen that product providers stop paying commissions if there is no handover or succession plan in place when a KI or representative is no longer in the business!
Your succession plan checklist
These eight checkpoints will ensure your succession plan meets your and your clients’ needs.
1. Your succession plan must be in writing
Handshakes and informal agreements are great, but don’t meet compliance regulations and can easily be reneged on.
2. Identify and nominate an appropriate successor
“It is very important for FSPs to ensure that an appropriate successor is nominated,” says Volschenk. This successor needs to be appropriately authorised for the subcategories you have on your license. If your successor doesn’t have the same accreditations, they cannot service your clients as you did. In this case, the practice will either need to be closed or suspended, which means no new business and no commission payments, until the accreditation is completed.
Your compliance officer, broker consultant, product providers, colleagues and industry bodies such as the FIA and FPI can assist with identifying a potential successor.
3. Review the plan annually
What if your successor retires early due to ill-health? Or if the business you planned to sell to loses interest? These could become serious issues that derail your succession plan when the time comes to implement it. Reviewing the plan annually will ensure any potential snags and red flags are identified and succession plans updated accordingly.
4. Value your business annually
Commission earned and future income influence selling price along with persistency rates, lapse details, any clawback agreements and cashflow plans. Ask colleagues and fellow FSPs what the common “sale” multiple is, such as 2 or 3 times annual commission, so you have an idea of what your business is worth today.
5. Enhance the value of your business to increase the selling price
The basics need to be in place including detailed and accessible records and steady income streams, with no outstanding debts or compliance requirements. In addition, client retention and growth are key. Marketing and growth plans will also be of value to any new owner and help you grow your business and income.
6. Have a clear client service mission statement
Your clients need to be assured of a similar service when you leave the business, which means you have to know and put in writing what that service is. For each client this includes what products they have with what provider, what advice services you offer and how often you communicate with them. If you regularly send out newsletters, will your successor continue this? Does your successor know who you meet online and in person and what you discuss? How will your successor access client records and CRM systems? Answering these will result in a smoother handover, better client retention and hence more rand value for the business and book.
7. Prepare for and document the handover process
Prepare clients and your successor for the handover process. For example, clients will have to sign new mandates with a new FSP and a successor may have to apply for product accreditation with product providers.
In addition, you must have a plan to let clients know your succession plan, what will happen and what they can expect, so they are not caught off-guard and tempted to move to another FSP when you leave.
Lastly make sure to document the process. This includes the legal and formal requirements such as mandates and product provider relationships, as well as any buy and sell contracts.
Top tip: Check that any contracts, such as a buy and sell agreement, meet South African law and FSCA standards. Ask your compliance officer for assistance with this.
8. Take care of your retirement and financial needs
Make sure you are financially secure when you exit the industry, especially if you are retiring. Knowing your current income will assist you in determining how much you need in retirement, and the earlier you know this the easier it will be to achieve. If necessary, get yourself a financial adviser to keep you on track with your financial plan.
Spending time on your succession plan will increase the value of your business
Good succession plans take time to document, review and adapt, and are often a work in progress. With the many demands on an adviser’s time, continuity planning can seem a process with very little return on investment. The return will come. Working on areas that increase the value of your business, such as minimising lapses, retaining clients and onboarding new clients, adds value to your income today as well as improving your ultimate selling price.