Succession planning for advisers tends to focus on the exit options available. Will they sell to an external buyer or will the baton be passed to the owner’s children or a younger adviser?
Will the adviser want to phase their retirement by reducing their hours or do they want a clean break?
These are not things people tend to think about when starting out or busy growing a business, but they will need to be addressed at some point. The question is, when?
Pinning it down
Joint research from the Financial Planning Association and Janus Henderson in 2018 showed 73% of advisers did not have a written succession plan. But more recent studies indicate that, since the pandemic, succession planning has been higher up the agenda for firms.
Advisers should leave at least three years to execute the most effective succession
PwC’s 2021 Family Business Survey found an uptick in planning for succession, with 30% of family businesses having a formal strategy — double the number in 2018.
If Schroders’ 2022 Adviser Annual Survey is anything to go by, succession planning is a growing issue, with 17% of advisers saying it is an area they are most concerned about.
Being concerned indicates a need for action and some commentators can pinpoint a specific timeframe for this.
“When planners start to regularly feel they are not enjoying the work, or have decided a date to exit, they should leave at least three years to execute the most effective succession,” says The Openwork Partnership head of partnership services Setul Mehta.
We recommend reviewing your succession plan every three to five years
“Leaving it less than that will mean a poor experience for the planner, the successor and the clients.”
Varying timeline
Because advisers can exit in different ways, Mehta adds — via a sale, handing the business to a successor or with a management buyout — each scenario requires a different timeline.
Even if your plan for leaving the business is far in the future, sadly situations outside our control can happen at any time
“If you are a business owner seriously looking at a succession plan or sale, five years is the ideal amount of time it should take to do it well,” he says.
Some commentators believe there is no time like the present when it comes to succession planning.
“The best time is as early as possible,” says One Four Nine managing director Gabrielle Beaumont.
“A business with a credible succession plan is more attractive [to buyers] than one that doesn’t have a plan.”
Vicky Timothy, partner in the wills, trusts and probate team at law firm SAS Daniels, holds a similar view.
“The ideal time is now,” she says. “Even if your plan for leaving the business is far in the future, sadly situations outside our control can happen at any time.”
If you are a business owner seriously looking at a succession plan or sale, five years is the ideal amount of time it should take to do it well
For example, if the business owner were to need time away from work, lose capacity or even die, it could be detrimental to the business and cause additional stress at an already difficult time.
“Having a succession plan means you could also consider who would look after your business if needed in these circumstances, as well as having a long-term strategy for both the business and your planned exit,” adds Timothy.
Back-up plans
If retirement is not imminent, there is no guarantee a chosen successor will be in a position to take over as planned. Will they be able to afford it? What if their life changes and they need to leave the business? Will a son or daughter even want to take over? Having a back-up plan could save a lot of hassle.
A business with a credible succession plan is more attractive to buyers than one that doesn’t have a plan
“We suggest having a Plan B and even a Plan C because the person you are planning to be the successor of your business may not be appropriate at the relevant time in the future,” says Timothy.
“We also recommend reviewing your succession plan every three to five years, and where there is a change in your circumstances or in the business.”
This article featured in the July/August 2023 edition of MM.
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