Planners ill-prepared for key departures

An overwhelming majority of clients would drop a financial planning practice if their current adviser were to leave the group, prompting serious questions about the value of buying into a practice when a key principal is departing, a new survey has revealed.

The survey, conducted by the Business Health group, was based on the online responses of over 10,000 financial planning clients over a three year period.

It found two in three clients would abandon a financial planning practice if their adviser was to change.

Business Health principal Tony Stephens says the findings have serious implication for planning practices, particularly those looking to either sell their business or buy into someone else’s.

“Clients are getting smarter and if they don’t like the new adviser or the service from the business, this study is telling us that they will not be sticking around,” he says.

Despite this client flight risk, most planning businesses are ill-prepared, Business Health found.

A separate Business Health survey of 500 financial planning practices revealed 50 per cent did not have in place a plan to cover the loss of a key person.

What’s more, 73 per cent did not have a clearly documented succession plan. Only 19 per cent had even identified a suitable successor.

“It is inexcusable that they do not have an heir... dealer groups should get involved and create options for their advisers,” Stephens says.

On a positive note, Business Health found 77 per cent of financial planning groups had documented business plans in place.

However, only 28 per cent of these had been reviewed in the last 12 months.

“A lot of the time you ask people if they have a business plan and they say ‘yes’, but it may have been something they put together 18 months or two years ago,” Stephens says.