BLUE CHIP FINANCIAL SERVICES SUCCESSION PLANS REALLY MATTER Unlike retirement plans, all advisors need a proper continuity plan – even if you are in your 20s or 30s. A series on succession planning, business continuity and retirement planning. Part 2 In Part 1 of our series, we showed that people mean two different things when they talk about succession plans: business continuity and retirement planning. In the second part of our series, we look at continuity plans. A business continuity plan for a financial planner is constructed for the same reason as any other business – to enable the business to continue after a potentially disastrous event. However, unlike businesses in other industries, it is a legal requirement as the FAIS General Code of Conduct requires every financial service provider (FSP) to have a continuity plan. A continuity plan considers unplanned but foreseeable situations, and it is unique to each business based on its nature and size. For example, you can be certain that every IT company in Silicon Valley, situated on the San Andreas fault, has backup data facilities in geologically stable places. You can argue that the smaller the business, the more important it is to have a well thought-through and practically implementable plan, because there is simply nobody else to pick up the work should something happen to one of the critical people. Think about your continuity plan as a will for your business. In the same way that you would always advise your clients to have a will, you should do the same for your business and construct a legally binding document to ensure that your wishes are carried out. When it comes to professional service providers, especially a small advisory business, the continuity plan is more likely to be focused on critical individuals where the most likely disaster is that one of them suddenly passes away. Because of this, I am going to focus on the people aspects of your continuity plan, although it is important that you consider all the possible risks to your business, whether they be traditional risks like fire and theft or modern risks like cyber-attacks. The single most important matter in your continuity plan is selecting the person who will take over your practice if something happens to you. There are several points to consider: • Does the person have the capacity to take over your client base? • Do they have an advice philosophy like yours? (Or are your clients going to have to forget everything that you have told them?) • Do they have a preferred solution set that is like yours or are they going to move all your clients into different products? • Do they have all the accreditations and contracts with product suppliers that they will need to advise your clients? While it is not critical, it is practically easier if your successor is in the same FSP. If they are in another FSP, you will need to consider whether they will buy your FSP, your company and/or your practice. This matters because it determines to whom the proceeds will be paid, and that has tax implications. Have you discussed the implications for your staff? Will they be happy working for your successor? Will they relocate or remain in the same office? In most cases, your staff are a big part of your client relationships, which means that your successor may be happy to pay more if they move to the new practice. However, your successor may already have sufficient support staff to absorb your practice, meaning that your support staff will be redundant. Have you informed your clients who will take over should anything happen to you? This will give your clients peace of mind and will improve their experience if you pass away. This, in turn, will result in more clients remaining in the practice – which increases the value. Have you agreed how the practice will be valued and who will do this? In many cases your beneficiary will be your spouse and it is likely that they will understand much less than your successor. Remember that a seller always thinks that their practice is worth more than the buyer, so it makes sense to involve an independent valuer early in the process. This will manage expectations on both sides and, more importantly, it will help you increase the value of your practice. In many cases, your spouse might be one of your staff, which gives you the option of putting a different solution onto the table. If they intend to carry on working, it makes sense for them to remain in the practice to ensure the smooth transition of clients to the successor. But instead of doing a valuation and receiving a lump sum, they can get an ongoing annuity of, say, 30% of future revenue. This creates a real win-win-win. It has meaningful cashflow implications for the successor, it improves the client experience and it extends your spouse’s working life while enabling them to realise the equity that you’ve built in your practice. In summary, a business continuity plan is a necessity for all planners who care about their clients and want to ensure that their beneficiaries realise the equity in their practice. The plan needs to be formally contracted so that it will be implemented. Given that your practice could be one of your more significant assets, it makes sense to get advice from an expert in practice management to avoid pitfalls like the ones mentioned above. Guy Holwill, Chief Executive Officer, Fairbairn Consult 56 www.bluechipdigital.co.za *Part 1 of this series was published in Blue Chip issue 82, Jan 2022. Part 3 (retirement planning will be published in Blue Chip issue 83, Jul 2022. Fairbairn Consult is a firm of Registered Financial Advisors. We are a licensed FSP and a member of the Old Mutual Group.
FAIRBAIRN CONSULT FINANCIAL PLANNING ARE YOU CONSIDERING LEAVING THE INDUSTRY, BUT UNSURE ABOUT YOUR OPTIONS? Fairbairn Consult Financial Planning is a growing firm of unbiased, salaried, Certified Financial Planners (CFP®). We are actively looking to purchase client bases from financial planners wanting to exit the industry. We will work with you to structure an exit strategy that is right for you and your clients’ needs. To find out more, scan my QR code or visit www.fairbairnconsult.co.za ombds 03.2022 C5488 Fairbairn Consult Financial Planning is a Fairbairn Consult franchise. Fairbairn Consult is a licensed FSP and a member of the Old Mutual Group.
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