Uptick in succession planning among mature firms

In the last 12 months, there has been marked improvement in future planning among advice practices, according to Adviser Ratings.

In 2021, less than half of mature businesses (five-plus years) said they had a succession plan. By 2022, this had grown to almost 70 per cent. 

Additionally, just 25 per cent now say their plan needs to be revisited and refreshed compared to 44 per cent a year ago. Only three per cent of mature practices do not currently have a succession plan.

However, it was a different picture among businesses that had been around for four years or less, Adviser Ratings noted. 

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Just 35 per cent of these firms has an updated succession plan in place, with over 40 per cent saying their plan needs to be redeveloped.

Among advice businesses less than a year old, a third had an up-to-date succession plan while around 31 per cent said their plan needs some work. Due to their young age compared to other practices, this cohort is also the largest (17 per cent) to be currently developing a plan, though this is slightly higher than in 2021 (15 per cent). 

“Regardless of future intentions, succession planning is an important strategy for advice businesses, especially as firms start to grow,” Adviser Ratings said.

“For some practices, it means identifying key talent to step into new roles in the future, while for others, it involves who will take the reins if a manager leaves. It can also involve preparing for merger and acquisition activity.”

For firms considering mergers in their succession plans, understanding each other’s long-term outlooks has been previously identified as just one among many factors to consider. 

Other important aspects include ensuring a good cultural fit; taking stakeholder opinions (like clients) into account; looking for economies of scale within the practices; and having an exit strategy in place. 

“In recent years, many financial planning firms have struggled to meet their business goals. Things like changes in legislation, increasing costs, and the global pandemic have put extra strain on practices everywhere,” observed Mutual Paraplanning Services. 

“Because of this, some business owners feel stressed and explore their options. One thing some consider is merging their business with other like-minded practices.

"Merging your business is one of the biggest decisions that you’ll make for your business. It requires careful consideration, plenty of meetings, and hours of due diligence to make sure that the decision to merge benefits all parties involved as much as possible. If you’re still unsure, try finding and reaching out to other business owners who have been where you’re at. You can get a better picture of what they learned through the process and decide if merging practices with another business owner is right for you."