Making your practice succeed

One of the most important factors in managing a practice is business continuity. Yet fewer than one in five financial advisers have a documented succession plan.

Many advisers take steps to ensure that they are covered if they are unable to function due to ill health or disability. They take similar steps to secure adequate retirement capital.
Yet, according to a survey by Celestis at the end of last year, fewer than one in five financial advisers have a documented succession plan. That statistic becomes even more frightening when we realise that families, employees and clients could face serious difficulties should a practice owner die prematurely.

Beyond retirement

Highlighting the problem is the fact that less than 20 percent of the advisers surveyed say that they intend retiring within the next 10 years – despite the fact that the average age of advisers in SA is in the vicinity of 49. Most advisers, therefore, intend working beyond the normal retirement age.

Who will fill your shoes?

Clearly, succession planning, the cornerstone of business continuity, is something that worries a number of practice owners and it is hard to imagine that the majority of advisers in our industry have not considered the issues. It is possible that many advisers simply do not know how to resolve their issues. In all likelihood, identifying a successor is the nub of the problem. Unless you have a family member or an associate ready and willing to step into your shoes, to whom do you pass the practice on to?

Less than a quarter of our respondents have a family member waiting in the wings to take over the practice, while 40% of them would like to sell the business to another independent adviser. Interestingly, more than a third of our respondents indicated that they would belooking to buy another practice at some stage in the future.

Creating a market

We need to create a market for financial advisory practices in South Africa. Buyers already exist for the right business and we need to understand what will drive the transactions.

Most potential buyers and sellers expect a deal to be resolved on an instalment payment basis and the vast majority would prefer some ongoing involvement by the seller for at least six months after the sale. At least half of those interviewed would like to dispose of the business in full or sell off the entire client book, a clear indication that they would want to exit the industry.

Obstacles

What's holding us back? Potential sellers anticipate difficulties in leaving the industry, valuing the business and finding suitable buyers or successors. Those looking to buy are concerned with conducting an effective due diligence audit, securing competent financial advice and valuing the business. None of these issues are insurmountable and several could be addressed through an existing industry forum. All we need is for a few industry players concerned about business continuity to get together and decide to get the ball rolling.

Planning ensures success

You are developing an asset - your practice. There will come a time when the nature of that asset must transform. The practice must be disposed of and you (in the case of retirement or voluntary withdrawal from the industry) or your dependents must derive maximum benefits from the sale – even if your successor is a family member. This should be a major goal in managing your practice.