Longevity of your income stream

20 January 2015 Dan Hugo, PSG

Today’s independent financial advisers are very successful in providing much needed professional financial advice and services to their clients. However, they are sometimes less successful in sustaining a business beyond their own careers. As a result, they often leave their clients to do that portion of their planning on their own. They might also be leaving a significant amount of money on the table.

According to Succession Planning for Financial Advisers* by David Grau, “Wealth doesn’t have a lifetime. Even so, clients have a clear expectation of advice tailored to the length of their lives, not to the length of their adviser’s career.”

The options to ensure the longevity of a practice and income stream are either selling internally (also known as succession planning) or selling externally. But what are the differences between these?

Selling internally

The aim of most succession plans is not to remove you as the founder. Rather, the aim is to build an enduring business around you. This can provide you with an ongoing income stream, while also providing mentorship to a team of internal successors as you gradually hand over the reins over a period of time.

It is the best way to:

• realise the value of a lifetime of work
• recruit next-generation talent to grow your business
• preserve and protect what you have built

Selling externally

If succession planning is not your chosen option, you need to get the optimal price for your business and avoid attrition. Attrition happens when you start working fewer hours, with less focus on your business. You will start to lose clients gradually, until eventually there is nothing left to sell, or to earn an income from. Factors that determine the potential value of your business include the following:

• client relationships
• cash flow
• type of income
• infrastructure

It will be essential for you to have records of this information to validate your asking price.

What is a succession plan?

A succession plan is a written plan for an existing business, designed to gradually transition ownership and leadership internally to the next generation of advisers. It makes sure that your talents and the knowledge and culture you have built into your practice have lasting value, and can be relied on by your clients into the future.

Implementing a succession plan

• Start as soon as possible but at least five to ten years before retirement.
• Make an effort to attract the right talent.
• Have a plan in place to train newcomers effectively.
• Empower your team to achieve more as a group than you could do as a single entrepreneur.
• Bind talent by compensating advisers for contributing to a single enterprise, rather than building individual books.
• Make the jump from a practice that produces revenue to a business where profits are shared by owners.

Entrepreneurs are successful because they are great competitors, but in many cases their businesses lack the endurance factor. A business must be able to survive the founder’s retirement, death or disability – and that will come from collaboration, as much as competition.

*Succession Planning for Financial Advisers was published by Wiley Finance in August 2014 and is available at

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