Passing the baton

After several years of confronting waves of regulatory change as well as market turbulence, the average financial adviser could be forgiven for not having devoted a huge amount of time to implementing a succession plan.

But it is critical to have an effective succession plan in place, especially with practice valuations also having taken a beating over the course of the global financial crisis, to ensure advisers are able to realise the value locked within their businesses.

Forgotten but critical
Business Health director Terry Bell says he is constantly amazed by how few principals have an effective succession plan in place.

“It’s one of those things people put off because they don’t want to do it, or it’s hard or it’s confronting or it’s never the right time,” he says.

The latest Business Health/Securitor Future Ready white paper has analysed more than 300 planning businesses since the previous Future Ready paper was released in 2010 and found the proportion of practices with an effective succession plan has actually dropped.

The paper found that only 29 per cent of practices in the marketplace have a clearly documented succession plan or buy/sell agreement, well down on the 46 per cent found in 2010.

Of those that do have a clear plan, only 53 per cent have a successor who has formally agreed to the plan, and with the average age of practice principals in Australia nudging 60, the decline in the number planning for succession is “extremely disturbing”, according to Business Health.

Mr Bell, however, says the benefits of a sound succession plan are immediate – and that practices with an effective plan are, on average, almost two and a half times more profitable than those with no plan at all.

While this might seem counter-intuitive, it’s a bit like planning to sell your house and giving it a new coat of paint.

“People think, ‘If I’m going to sell I’d better get my business looking better, so I’ll document my systems and processes and I’ll get a database in.’ By doing that, the business boosts its profits in the meantime,” Mr Bell explains.

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