In my view, financial planning practices are concerned about succession but have trouble accepting the changes they need to make to their business to allow a smooth and rewarding succession to take place.
Most financial planning businesses I come into contact with talk about succession as a major issue. If it is such a major issue, why do so many planners still struggle with the solution?
Planning for succession is not something you leave until the principal in the business decides to call it a day. Succession should start as soon as the business is established.
A properly constructed succession plan not only facilitates succession, it assists the business to grow its revenue and increase its value. I refer to succession planning as business continuity, as it ensures the business revenue continues to grow when the principal retires, or wants to have more time for their lifestyle activities.
Most financial planning practices see the obvious place to begin planning for their succession is to appoint another planner. It makes sense, or does it? In my experience, bringing another planner into a practice goes like this.
Every person must pay his or her own way. So I will start the new planner on commission, that’s how every planner started originally. This will reduce the overheads and ensure that the practice takes no risk.
The new planner can service C and D class clients. What planner is going to risk their A client’s with a new planner? The issue is the new planner may leave the practice because they are unable to make a living under these arrangements based on commission.
The practice may have no processes in place for the new planner to follow. This means the new planner finds his or her way of operating which is likely to be very different from the rest of the business. In this situation, you will find you have a small business trying to establish itself inside a larger business.
Principal dependency is rife amongst the financial planning fraternity. Nobody can do it like the principal planner. Clients will not trust anybody except the principal. The principal’s way is the best way.
I suggest the business needs to implement a business continuity model. A model where the financial planning process is broken into segments and job descriptions are established around these segments. People with the appropriate skills then fill these positions.
Practices need to utilise their client service managers more to complete many of the functions that might typically be performed by the principal planner.
The client service manager should be involved in fact finding with the client before the first interview. They should assist the principal planner when conducting the initial interview with the client, taking notes and recording additional information.
They should also assist the principal when presenting the recommendations to the client. The client relationship has been established with them from the beginning, reducing principal dependency.
The client is comfortable discussing business with them and this process provides support staff with an insight into how the principal operates. The principal has more time to spend fostering relationships with centres of influence and meeting with clients.
So what do client service managers and potential successors want when they join the practice? Remuneration, a career path and possibly equity.
Remuneration is important. If they are enthusiastic professionals they will probably want commensurate income equivalent with similar professional positions.
It is important to offer a fixed salary as well as guidelines on how they can receive additional income for assisting the firm meet its objectives and also consider offering profit share or revenue share.
Small businesses are an attractive option to many people and they may be looking for a career path in the business. If they do not understand the career options available in your firm or what is expected of them in order for them to progress, then why would they stay?
Large firms tend to offer their employees opportunities for personal and professional development, small firms need to consider these areas and make it part of their overall employment strategy.
So when do you offer equity? I believe equity should be made available if you progress to a certain level in the practice or you can demonstrate your ability to achieve certain objectives.
If you run a financial planning practice, you need to put your business on the business continuity path, otherwise you might find yourself working well into your twilight years and missing out on potential revenue.
Greg Miller is the general manager of Garvan Financial Planning and MLC Financial Planning.
