Is your financial advisory practice prepared for the future?

As the financial advisory industry evolves, the need for robust succession planning has become more critical than ever. FAnews spoke to Laurence Muller, Masthead Finance Di-rector and Chief Operating Officer, who provides an in-depth analysis of the current trends, challenges, and best practices shaping succession planning within financial adviso-ry practices.

Trends influencing succession planning

The financial advisory landscape is increasingly complex, with several factors driving the need for effective succession planning. Muller highlights some of the key industry trends:

1. Complexity risk and third-party requirements: “Older advisers are increasingly seeking business partnerships to outsource complex issues or sell their businesses entirely,” says Muller. This trend is driven by stricter product provider requirements, inadequate retirement provisions, increasing compliance demands, administrative burdens, technological advancements, and evolving client needs.
2. Evolving market needs and client expectations: Financial advisory practices are now planning their succession much earlier, often five years in advance, rather than six months before the transition. This proactive approach ensures that clients are accustomed to dealing with the advisory business as a whole, rather than relying solely on a star adviser. Partnering with specialist service providers and utilising CRM and FNA systems are also crucial components of this strategy. “Good processes around client data and engagement significantly increase the value of a financial advisory business,” Muller explains.

Components of a robust succession plan

Muller emphasises several critical elements for effective succession planning:

1. Clear communication with clients: It is vital to involve clients in the succession journey from the beginning to ensure a smooth transition.
2. Product provider match: Ensuring that the successor aligns with the existing product providers can facilitate a seamless transition.
3. CRM and legal entity construct: Utilising CRM systems to manage client data and establishing a clear legal structure for the business are fundamental.
4. Robust compliance culture and support staff buy-in A strong compliance culture and the support of administrative staff are essential for continuity.
5. Involvement of stakeholders: Including other stakeholders, such as spouses or dependents, in the succession plan helps to maintain stability and support during the transition.

Ensuring a smooth transition

For a smooth succession, Muller advises that both the successor and predecessor operate under the same Financial Services Provider (FSP) licence. This arrangement accelerates the transfer of clients and revenue streams, providing an automatic product provider match. 

“The ideal scenario is for the successor and predecessor to join under one FSP licence a year or two before the actual succession, allowing for a controlled and transparent client transfer,” Muller notes. This approach improves client retention rates as there is ample time to introduce the new adviser to clients. 

Potential successors and future leaders

Finding a suitable successor is not simply about locating someone interested in purchasing a client book. The key is for the successor to connect with clients. “Clients need to have confidence in the successor's skills, knowledge, and experience, ensuring that their financial goals will continue to be met,” says Muller.

Potential successors must possess attributes that align with client expectations and the established rapport.

Muller highlights that successors from within the business, such as family members or junior staff, often result in the most successful transitions. This approach minimises disruption and ensures continuity for clients, providers, and staff.

“Exposing the successor to all aspects of managing the business, including giving financial advice and acting as a Key Individual, is crucial,” Muller advises. Combining experience, exposure, and theoretical knowledge helps bridge any gaps in the successor's capabilities.

Client relationship transfer, trust and loyalty

Early communication of the succession plan to clients is essential. Allowing time for both the old and new advisers to work together and introduce clients to the new adviser ensures a comfortable transition.

Service Level Agreements (SLAs) with clients clarify the service and value proposition, increasing the likelihood of client retention post-succession.

Transparent communication and the involvement of familiar administrative staff in the transition process are key to maintaining client trust and loyalty.

“Clients often have strong relationships with the business's admin staff, so their presence during and after the handover significantly improves client loyalty,” Muller explains.

Critical considerations for business continuity

Well-documented systems and procedures, along with a comprehensive CRM system containing up-to-date client information, are vital for ensuring business continuity during adviser transitions. The stability of back-office support staff is also crucial for maintaining seamless operations.

Most advisers find that they lack sufficient capital to replace their monthly income upon retirement. Therefore, it is advisable for advisers to remain active in the business for as long as possible.

“Advisers can delegate management responsibilities to a successor or business manager while continuing to engage with clients and provide financial advice,” Muller suggests.

Joining a larger firm with a likeminded culture and good client fit can also provide operational, licensing, and regulatory support, allowing advisers to stay in the business until they can afford to retire.

Writer’s thoughts

As the financial advisory industry evolves, succession planning has become increasingly important, moving from a "nice to have" to an essential component of long-term success. How prepared is your practice to thrive beyond your tenure, and what steps can you take today to ensure a legacy of trust and continuity for your clients? Please comment below, interact with us on X at @fanews_online or email me your thoughts myra@fanews.co.za