Australia Day is now behind us so it’s time to get serious about 2021! In this current world of uncertainty - politically, economically, and in terms of COVID-19 - how are you advising clients? No doubt you are telling them to plan for the worst – in terms of positioning their investment portfolios, income security, and adequate risk protection – and hope for the best. But are you approaching your own business future with the same degree of attention to the upside and downside scenarios?
In last week’s article on business planning, we discovered that less than a third of surveyed small advice businesses (< $500k annual revenue) had a current business plan. And yet almost half of them were expecting to make material process efficiency changes to their operations in 2021, which invariably comes with associated investment in technology and compliance.
“A goal without a plan is just a wish” Antoine de Saint-Exupery, writer and pioneering aviator.
Given the number of advisers leaving the industry, including in many cases younger advisers who may have been groomed by management to step into their shoes, we were interested in understanding how well prepared advice practice owners were for the inevitable changing of the guard. From our recent survey of over 500 practices in Figure 1, we were astonished to see that 90% of small businesses (< $500k annual revenue) do not have a successor, while 71% of larger businesses (> $500k annual revenue) are also lacking this critical aspect.
Figure 1: Advice Practice Owner Succession Plans
Source: Adviser Ratings Practice Survey (n=450)
While a successor strategy for many smaller practice owners may not involve them staying around as part of selling their business or auctioning off their client book, the absence of an identified or nominated caretaker simply raises the risk of any transition for both the business and, just as importantly, for the incumbent clients.
Clearly, for single adviser businesses where the adviser is generally the business owner too, not having a clear succession plan could spell doom if they have health problems or extended periods of leave. There is no margin for error here. The larger businesses with more advisers and corporatized structures including business heads have more options to craft smart transition plans, although this includes ensuring the key successor(s) are supported and retained.
The burgeoning world of business consultants are prospering for good reason – with so much structural industry change afoot, there is much to do in terms of re-engineering advice businesses to create longevity in the business model, financial sustainability, but also to mitigate key person risk so that the business can survive an owner / founder moving on.
Do you know who you will pass your business on to? Are they prepared? Have you thought about what your clients would think of that? If this has stirred your creative juices, please have your say at www.adviserratings.com.au/yoursay and access the research that will be provided to you about the latest developments in the advice industry.
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