Successors should not have to pay cash
Phil Guest solved his succession planning problems by simply giving away shares in his financial planning practice. He decided that, while there were successors to his business, Guest McLeod, in place, they couldn’t afford to buy a stake in the company.
“The myth is that the initial successor must pay hard cash for the business,” he says.
“I transferred a section of the business to the successor. Initially I gave 5 per cent of the business but over a 10-year vesting scale.”
After five years the successor got another 5 per cent, again vested for 10 years and, after seven years another 5 per cent. The vesting period ensured the successor stayed with the business.
In Guest’s case, there were two successors. One left and sold his stake to the other successor. Subsequent successors have taken up similar offers and Guest now owns 40 per cent of the company. The rest is with his successors.
“Today my 40 per cent is worth eight times more than the 100 per cent company I owned a few years ago,” Guest says.
“The successor receives dividends and they have a feeling of ownership which helps you retain them in the business.”
The key to finding someone to become your successor starts on day one, Guest says.
When Tim Rossell joined as the graduate apprentice, it was because Guest was overloaded with work.
“I set him working on the AAA clients’ not the discards. He spent time working with me on these clients as it freed me up to see more AAA clients,” Guest says.
The rationale was it also freed Guest from some of the back office operations, worth $10 an hour, and left him to continuing earning $500 an hour with quality clients.
“We now had everybody working for the corporate good and in our case one plus one equalled five,” Guest says.
Guest McLeod now has a continuing successor plan, each new graduate bringing different skills to the practice, which boosts profitability.
“The successors now have a stimulating career and, for the senior adviser, there is now a planned and profitable exit strategy,” Guest says.
Recommended for you
Far too few wealth managers are capitalising on the opportunity presented by disruptive technology to deliver personalised investment solutions to the mass affluent demographic, according to PwC.
With over half of advisers using managed accounts, HUB24’s head of managed portfolios has unpacked the benefits driving their usage and how they can be leveraged by advice practices.
The FSCP has announced its latest verdict, suspending an adviser’s registration for failing to comply with his obligations when providing advice to three clients.
ASX-listed platforms HUB24, Netwealth, and Praemium have used their AGMs to detail how they are using artificial intelligence to improve their processes and the innovative opportunities it presents.
