A couple of years ago, as a long-term employee, I was given the opportunity to purchase shares in the company I worked for. Anthony Pears, another financial planner in the business, and I were both given this opportunity. For me, it was a major decision because, at that time, I was in the position of practice manager, and therefore not in a position that generated income.
Over the years, as an employee, I had experienced first-hand the growth of the company in many areas. We had strong ongoing revenue and organic growth; a network of quality centres of influence referring quality clients. The client retention rate with existing clients was very high. The business from a financial perspective was also strong and profitable.
These business fundamentals were excellent but this was not enough for me to decide to buy into the business. Deborah Kent, a director and major shareholder of Integra Financial Services – with long-term plans to exit the business – had a strong view on how the succession plan should work. The proposed succession plan and its implementation were to be transparent with open communication and feedback.
Deborah took the view that for this to work, it had to be done in a way that would see us all benefit, including our clients, and that it would take time to implement. The business is structured so that all clients are “Integra” clients and not adviser-specific, so our clients become comfortable with all planners and staff. This will assist with the long-term planner transition. The cashflow funding was arranged through Macquarie Bank.
Their Relationship Banking division was very proactive, co-operative and helpful in providing the most suitable solution for our needs. In a true testament to the name of this division, they have provided outstanding service, and with the strong relationship that we have developed will no doubt play a pivotal role in further funding as we increase our shareholdings in time.
The arrangement we have made internally within the company for us to service the debt is one where we personally, and the company, are not adversely affected financially. In order to know where we all stood, a shareholders’ agreement was drawn up using our preferred legal firm, Matthews Folbigg, which is based in Parramatta. Independent advice was sought by all shareholders to ensure we understood and were happy with the agreement.
This process could have been a very detailed, time-consuming and expensive exercise if we weren’t careful. However, the law firm helped us through this in a very userfriendly manner. We took the view that it was vital this agreement be created at the outset and before any issues arose between the business partners, even though we recognised that it would need to be reviewed regularly.
Adequate life insurance, income protection and trauma cover was written for all shareholders to protect us and the company in the event of an unforeseen incident. You can never be too careful. In reviewing the whole process it would be quite easy for the exiting partner to have the view that they built the company, that it will be all theirs until the day they retire, and to expect a lump sum payment on that day and never look back.
The determining factors for me in choosing to purchase shares as an employee came down to Deborah. She sold the plan and the future of the company. She was open-minded and insightful with the way she handled and viewed the entire process. And most importantly, she understood there had to be mutual concessions and cooperation from both parties for this succession plan to succeed.
For our part, we needed to respect and take into consideration that she established and developed our business to where it is now. Deborah may not be exiting the company for another 10 to 15 years. However, we have a workable and realistic succession plan in place that will constantly grow and evolve over that time. Even without being in an income-generating position, as long as a company has a strong leader, manager and team, a positive culture and a shared vision then I believe there is no reason that an employee cannot become a shareholder and benefit from the long-term future of the business.
Andrew Brooks is practice manager for, and shareholder in, Integra Financial Services, in Parramatta
