Succession planning progresses in advice practices, but challenges remain

According to Adviser Ratings, research undertaken in recent years has consistently identified succession as an area of vulnerability for advice practices.

Notably, 80 per cent of firms acknowledged last year that they don’t have a successor lined up, while half of respondents expressed a need for one. Talent supply issues were also cited as a key barrier.

On a more positive note, Adviser Ratings has revealed a marked improvement in the number of mature businesses with up-to-date succession plans in 2022, with more than two-thirds of businesses in this category said to have a plan compared to less than half a year earlier.

One-third of businesses in the five-year-plus category still needed to write or refresh their plan, the research firm also noted.

However, most businesses that have been around for four years or less didn’t have an up-to-date succession plan, with just under two-thirds admitting they either need to do more work or don’t have a plan at all.

With younger businesses, just under one-in-five didn’t have a succession plan at all, with a similar proportion said to be in the midst of developing one.

“The financial advice world frequently changes size and shape, and for some practices, this has made planning for the future more difficult,” Adviser Ratings commented.

Acting as a catalyst for the talent shortage is the ongoing precarity around adviser numbers, with some advisers still up in the air on whether they will remain in the industry.

“While most remaining advisers have now committed to staying in the industry, hundreds have told us they’re unsure about whether they’ll continue, with uncertainty about future regulation among the reasons they’re on the fence,” Adviser Ratings added.

Earlier this year, a report released by Elixir Consulting also suggested that regardless of whether the current principals are intending to exit the business in the near future or they’re planning to stay long-term, resilient firms are characterised by being sale-ready or having an active succession plan in progress.

Namely, the report set out that effective succession should ensure that business owners are able to extract capital value from their entrepreneurship and efforts.

“Most advice principals seek a greater return than purely financial, however, they enjoy a sense of satisfaction and fulfilment when they see their legacy in good hands,” Elixir Consulting said.