Succession planning as a growth strategy

Troy Laas, National Divisional Manager at GCI Wealth.

Financial planners spend their lives helping clients to begin investing for retirement early enough. Just like the proverbial cobbler with all his shoeless children, they seldom take their own advice to heart: according to statistics from Sanlam, only 54% of financial planners have a succession plan, and only 36% of those plans are actually adequate.

“These figures are perhaps surprising, but what I really think needs to be emphasised is not so much just the need to have a proper succession plan in place, but to get it done early enough,” says Troy Laas, National Divisional Manager at GCI Wealth. “A succession plan that is timeous is not only much more likely to be successful, it can prove to open up new growth opportunities as well.”

Succession plans made late in life are typically done in a hurry, and usually involve a family member or another independent financial planner. A common error is that the appointed successor does not meet the Financial Services Board’s criteria to be a Key Individual, and one has to be appointed after retirement or death.

By contrast, if a successor is appointed in good time, the financial planner would be able to iron out any teething problems and client retention is greatly improved. GCI’s experience is that independents who merge with them retain up to 94% of their clients, whereas when an independent sells his or her book to another company or individual, around a third (30%) of the client base is eroded.

Laas argues that while proper succession planning at the end of one’s career might be sensible, putting the right plan in place can make even more sense for a younger financial planner.

“Many succession plans involve merging with another, usually larger organisation, which offers a number of benefits to the independent advisor: a reduction in the cost and burden of overheads like administration and compliance, access to research capabilities and, of course, a range of other financial advisors to take on clients,” he says. “But in fact these are benefits that a younger financial planner could use to take his or her business to a higher level.”

Laas points out that independent financial planners can only service a certain number of clients before they run out of hours in the day. Administration and compliance costs and efforts are major blocks to an independent’s ability to grow; another factor is the time needed to research the growing number of global investment options adequately and regularly.

“Joining a boutique specialist operation early on not only takes care of succession planning, it means the financial planner has a solid platform for building a bigger client list with the help of other independents in the same stable, with a revenue-split agreement creating a new income stream,” he says. “At the same time, he or she benefits enormously from shedding the burden of administration and compliance, and accessing the specialised asset consulting we can provide.”