A conversation with a friend and veteran financial planner has Matt Fogarty contemplating post-FoFA succession planning but one thing remains the same: exiting a business takes almost as much time, effort and consideration as setting up a business from scratch.
“I am happy to sell down my ownership progressively over the next five-to-seven years, but I need people around me who have the same belief, passion and, importantly, cultural values as us. I don’t want to sell to just anyone!” So the conversation went a few weeks ago with a long-time friend and financial planning veteran.
This type of conversation is being played out within practices and dealer groups on a daily basis, and highlights the fact that the strategy of succession planning is as much about good luck as it is good planning. For institutional dealer groups in the new Future of Financial Advice world, the quality, depth and options within their succession solutions will continue to determine their ability to attract new firms to their value proposition.
Once the FoFA dust settles it will be interesting to see how these dealer succession options might evolve, with leasing models, financing arrangements, transition support, partial equity plays and practice mergers all part of the succession puzzle.
Who said leaving was easy?
Planning to exit the business takes almost as much time, effort and consideration as setting up a business from scratch. As someone else said to me the other day, “You should always start your business idea with how you are going to get out.”
This is obviously a high priority if you are in business for the short term, but most owners of financial planning businesses are in it for the long haul and tend to put off succession issues. Their business is their retirement plan – for these people the thinking often is, “When I am ready to get out, I am sure it will be fine”. The reality is, getting out sounds a lot easier than it really is.
A July-8 commentary in The Australian Financial Review (“Finance industry not so easily renovated”) highlighted the current thinking of many planners and the dilemma they face. Many practice principals are saying it’s better to retire gracefully and leave it to the young folk to figure out how to survive in a world without trail commissions. “All sounds perfectly feasible,” the newspaper says, “apart from the leaving bit”.
Personal relationships and resources
The transition risks in succession are significant, especially given the strong personal relationships many planners have with their clients. Dealer groups are well placed to help the succession process but often struggle to supply the required resources.
Market volatility has also ruptured the value of some practices over the last few years and there is also the impact of FoFA, which has led to buyers of financial planning practices being more discerning about what sorts of legacy issues they are acquiring, which in turn is having an impact on how practices are being valued and the types of terms being applied to any deal.
Getting back to my friend: this is an issue that has occupied his mind for the best part of 12 years. He has had a few false starts and a few wins along the way. Despite frustration with the succession planning process, he often comes back to a basic principle which will ring true with many in the profession: “I want my clients to be looked after, and I want the business I have built to continue and be successful.”
Matt Fogarty is national practice development manager at The Encore Group.
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