A practical approach to succession planning
Financial planning practices that provide advisers with full ownership of their client book not only help to create profitable businesses, but they also address the critical issue of succession planning for advisers.
This is because ownership of a client book inter alia helps to drive accountability and responsibility on the part of intermediaries. Sanlam’s experience of its BlueStar business model shows that where advisers have the opportunity to go into business together and share administrative functions, planning for business and client continuity becomes easier.
Clients trust the brand
Where advisers operate under an entity, clients become familiar with their brand.
They don’t only work with the adviser in his or her individual capacity, but they also interact with the administrative staff shared by the practise. This business model can be compared with that of a medical or law practice where clients trust the brand – whether or not particular individuals remain associated with it or whether they retire or move on.
Setting guidelines
The efficiency of the BlueStar model has led Sanlam to embark on a joint venture pilot project which proposes guidelines on how advisers can value their businesses and develop a practice valuation calculator.
Given that this approach positions financial advice practices as entities based on profitability and not just on commission, it is likely to encourage advisers to think about the sustainability of their practices over the long term.
Selling a financial advice practice for value is not very common, especially among advisers with mainly life insurance books. However, this positioning will help advisers to realise that they have a sellable asset in their practices. Financially, this brings fresh perspective as, previously, advisers would simply have retired with a pension.
Critical timing
Ultimately, succession planning models that maintain consistency for clients are critical at a time when people are turning to a variety of sources for financial advice. Moreover, they may play an important role to position a more personal relationship between advisers and clients – in many respects a prerequisite in a trust relationship.
Ignore the default
It is worrying that so many financial planners still have no succession plan and that advisers who are agents of an insurer often leave the responsibility of reallocating the clients in the hands of the company.
For independent brokers, the default option is often to find a colleague who can take over their practice. The Financial Services Board (FSB) makes it compulsory for independent brokers to have a succession plan. However, most of these plans meet only the FSB’s minimum standards which ultimately make their implementation impractical.
An independent broker may, for instance, appoint a tied financial adviser as successor. But since tied financial advisers are not authorised to sell all insurers’ products, they will not be able to take over the broker’s entire clientele.
Ultimately, succession planning is about creating the long-term ability to look after clients – and to do so within your business. It makes sense, therefore, that an adviser practice should be structured in a way that allows any other qualified adviser to take over the business - providing the adviser the comfort that his or her clients will be properly looked after.
Where an adviser buys a client book without having had any involvement in the business, and with no sustainable structure or administrative staff, the individual is buying little more than a set of files. Relationships in a business have to be nurtured over time. This is, after all, critical to the success of financial advice.
