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Succession Planning – how to kick off the conversation

Published: August 29, 2013 by Fundhouse

Recently the online benchmarking and valuation exercise has given rise to an increasing level of interest in the issue of succession planning, it has largely been based on a number of factors, they are the following:

– It is a discussion which needs to take place in strict confidence with someone who can be trusted to treat the information
for the advisers benefit, i.e. an independent party;
– The person with whom the discussion is started needs to be well informed about the current issues in the
IFA market with respect to valuation and the purchase/ sale of practices;
– There needs to be an acknowledgement that there are factors at play beyond simply valuation and price – it is often a very
personal discussion at the outset.

At Fundhouse we have found ourselves to be in this position, and we will admit it is not something we set out to engineer – but we will say it is a position we treat with the respect and consideration it deserves. Similarly we have found that in a number of cases there is urgency about the discussion which we find unfortunate and we are left asking ourselves why this is the case. Our conclusion is that because the above factors have not presented themselves previously and the succession discussion has been shelved or the past experiences have been negative, as a result the advisers seem to be waiting for the perfect approach rather than engineering an optimal outcome for themselves.

The purpose of this brief article is not to suggest a quick and easy solution to the succession conundrum; rather it is to suggest a manner in which advisers faced with this challenge can begin to address it in a constructive manner where they develop a succession strategy and then a succession plan. The succession plan would take into account various scenarios current and future which would achieve the outcome the adviser would be looking for.

Our preferred approach is to have a conversation with the adviser and to determine what they want over the various time frames and to make sure that they have in place a plan which achieves this. For instance, the immediate need would be to cover their obligation in term of FAIS to ensure that should something unforeseen happen to them, their clients and business interests would not be unduly harmed. This would take the form of a business continuity plan (BCP) and at least makes sure that the business can continue until a lasting solution is implemented.

Once we have the BCP in place, we would begin to look at the medium and long term aspirations of the practitioners with respect to the practice and begin working out a strategy which would achieve these goals, The succession plan is then the formal framework which supports these strategic aspirations – it involves issues such as identifying similar practices with whom you may wish to initiate a conversation – as well as how you would access such a network of like-minded advisers. It would involve equipping the adviser with a robust knowledge of their practice’s current market worth and the potential demand for practices from the types of buyers which the adviser would be willing to engage with.

What we have observed is that there are all manner of independent financial advisers located across the country and all of them have to some or other extent looked at this issue of succession. Admittedly, some advisers are not concerned with the long term commercial aspects of selling their practices (surprising as that may be), they tell us they just want to continue to earn an income from their practices and make sure their clients are taken care of when they are no longer able to do so – for these types of practices, the solution seems to lie in finding a practice with a similar outlook and ethos and for them to enter into a reciprocal agreement to assist each other one day.

Somewhere in the middle of this spectrum are those advisers who are already being courted to come to an arrangement to sell their books to one of the corporate purchasers or active independent financial advisers in this market – we however find that most of these courted independent advisers would rather enter into an arrangement with another independent financial adviser, but because they may not be versed in corporate activity or equipped with the information we refer to above, they take the convenient route and sell to a corporate purchaser who takes care of all of that for them – as long as they think the price they are getting is reasonable.

At the other end of the spectrum we have independent financial advisers and prospective entrants in to the profession actively looking for books of clients to purchase, these independent advisers have thus far shown themselves to be discreet, but purposeful, they know what they are looking for and in many cases have already completed or been involved in some sort of corporate activity to date.

What all of this means is that independent advisers have choices when it comes to succession planning and whether you are needing to simply start the discussion with a ‘friendly party’ or whether you are looking to come to some sort of arrangement, we can assure you that you have options and need to not be overawed or rushed by this important process.


As members of the Fundhouse Adviser community, we will be dealing with the topic of succession planning specifically in the later Programme modules and publishing similar content online for all our subscribers. In the interim we are available to assist with your queries in this regard.