Advisers are great at making sure people have plans in place to cover unforeseen circumstances. But do they engage in the same planning for themselves? Recent research has found that more than half of firm principals surveyed acknowledged that their practice could not operate at all if they were not there. Are you a proverbial “plumber with the leaky tap”?
By Terry Bell
Somewhat ironically given the role most financial advisers play for their clients, very few advisory practices have adequately addressed what will happen if the principal is no longer involved in the business – either by choice or through a forced exit due to death or disability. According to our latest Australian analysis:
- Only 30% of firms have any form of documented succession plan or buy/sell agreement and a quarter of these do not cover all of the four major trigger events (death, disability, retirement and resignation). Down from 39% recorded in our 2014 analysis.
- 41% of the principals with a succession plan have not yet identified a potential successor let alone agreed to any terms or timeframes.
- 35% of businesses with a documented plan have no structured funding arrangement in place to support their succession arrangements.
While we fully appreciate that planning to transition out of a practice where the principal has spent many years building up, can be a challenging prospect, to defer planning, leaves the owner open to obvious risks. Not to mention the clients of the practice who should, not unreasonably, be entitled to expect, that their financial plans will continue to be professionally managed even if their primary adviser has departed the scene.
To bring this scenario further into perspective, two thirds of Australian practices are single principal/sole owner businesses and as the owner slowly, but inevitably, moves towards retirement the risk of dependence on him/her also increases. A risk the owner will surely have addressed many times with their own clients, but, it appears perhaps not so for their own business. Consider these findings from Future Ready VII:
- Just 11% of principals advised that their business would continue to grow and develop without them. In fact, a whopping 56% of principals acknowledge that their practice could not operate at all if they were not there.
- In 73% of the practices, the adviser alone conducts all of the client reviews.
- 44% of practices have no key person protection plan in place.
- Further, 63% of the clients who have completed the Business Health CATScan client survey have stated that they “would not be comfortable dealing with anyone else from the practice other than their current adviser”.
The risk is clear – as it has been for the past several Reports and we have yet to see a discernible improvement. Without a proper transition plan in place, these practices (and their clients) remain at risk.
While we hope that the above stats and facts, have made for interesting reading, perhaps a more compelling reason for practice owners to address any succession issues they may have, is this – our research reveals that those practices who have effectively implemented a succession plan are achieving a 110% increase in profitability compared to those who haven’t.
Stats and facts in this article are drawn from Future Ready VII – the seventh in a series of white papers providing an insight into the ‘health’ of Australia’s advisory profession and its preparedness for the future.
Terry Bell is the owner of Business Health. A version of this article was first published on Linkedin and was re-published here with the permission of the author.