Out with the old and in with the new

Stepping out of a practice that one has spent a life time building up — and getting the highest return for it - is a complex process.

It is one that is increasingly coming under the microscope of just about all dealer groups and many financial planners, as potential purchasers of practices become more discerning.

Indeed, many of the industry's stalwarts are now in their early-to-mid 50's and are moving towards retirement. And, as this happens, there is a growing gap between the existing and next generation of planners.

"Traditionally life companies recruited heavily and people came over from them, but the pinch in the early nineties led to a decrease in recruitment and, hence, a decrease in the conversion over to financial advisers," says Andrew Creaser, general manager of Associated Planners.

"Succession planning is one of the most important things we have to deal with as an industry. There are many new recruits, but there is still a ten year void between the current and next crop," he says.

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Instead of recruiting from other related industries, the trend now is towards industry-run graduate programs and towards developing paraplanners into client service and principal roles.

"We have an intense recruitment process tied into a scholarship at the local university. It's a vehicle to secure potential employees and it gives us a year to look at people," says Geoff Doyle, a director of Gunther Doyle Financial Planning in Toowoomba.

These schemes, however, are not always welcomed by customers, some of whom prefer to deal with more experienced advisers than recent graduates or young paraplanners.

To counter this, the pundits say planners are ensuring that principals are phased out gradually, and they are recruiting advisers with some experience or who are in their early 40's.

It is also harder for younger qualified professionals to purchase practices outright because they have had much less time to accumulate capital. Nonetheless, industry players - including Neil Heriot, private client adviser and director of Ord Minnett in Adelaide - say key staff are being offered equity incentives to facilitate the succession.

One key to success in succession planning, according to the experts, is to ensure that everyone is working along the same guidelines and that the odd idiosyncrasy that emerges in a "one-man" show is removed.

"Planners still haven't found models to separate a personality from a business and that is the challenge," says Peeyush Gupta, IPAC's chief executive.

"Business structure and stability is as important as having a buyer. Therefore, processes and systems need to be in place without disrupting standards of service," says Steve Tucker, chief executive of MLC Distribution Network.

He adds that these must involve all staff because a comprehensive succession plan would look at replacing all key employees.

The aim is to ensure that if succession is brought forward because of, say, death, the practice and customer service can continue without disruption. And, part of this involves ensuring that investors become the client of the practice, not the adviser.

While most advisers are well aware of the need to plan for succession, the dealer groups are also aware of the need to provide support.

"The responsibility to plan is the adviser's, but we encourage planners and provide incentives to bring new staff on board," says Hillross managing director Jonathan Harrison.

Mark Spiers, RetireInvest's chief executive, says his group has spent considerable time working on succession planning in regional areas where there are fewer potential buyers.

"We advertise internally and have moved people either intra- or inter-state," he says, noting that these efforts often allow paraplanners to buy into practices in a way not possible in the larger cities.

At the end of the day, the experts say the most important thing is to take action in the present term. Just finding a buyer without doing this, is a last resort.

"There will always be a buyer, but the price can be a problem for those with bad systems," Tucker says.

"You go into business to eventually sell it, but not having a plan to leave is akin to having clients with no plans for investment," adds Doyle.