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Developing your advice business

Part 3: How to find a suitable successor or buyer

Finding the right person or entity to succeed you is critical for ensuring that you leave a legacy, while paving the way for a smooth transition for your clients. Daniel van Andel, head of IFA Proposition, outlines some factors to consider. 

Whether you are looking for an internal successor, a continuity partner or a buyer for your business, the process for identifying a suitable successor begins with drafting a successor profile. This should outline your intended objectives, the characteristics and leadership traits you’re looking for in an ideal candidate as well as the skill set required to take the reins. Once you have a profile sketched, you’ll be ready to commence the search. Central to all three options are three questions that can help guide your search for a suitable successor or buyer:

  • Do you share the same values and business vision?
  • Is your approach to client service and investment allocation aligned?
  • What kind of diverse skills or benefits do they bring that will add value to the long-term growth of the business? 

1. Grooming an internal successor

Opting for an internal or true succession strategy effectively means you are choosing to create a path to partnership in your business. There are many pros to looking internally for your successor: The candidate already fits into the company culture, understands the business and how it operates, and has established relationships with clients. 

If you start the process of identifying potential candidates early on, you have time to mentor and upskill them, as you continue to service clients and grow revenue. It’s a win-win scenario for you and your clients because it gives your successor the opportunity to develop relationships with your clients and work on building their trust over time, while you are still at the helm.

An important thing to note is that access to financing remains a key barrier for young advisers. If internal succession is an option you are mulling over, you could consider breaking this barrier down by, for example, developing an internal equity programme. There are different ways to structure these programmes and they can be used to incentivise successors with ownership opportunities.

Factors to consider for finding the right fit:

  • Does the potential candidate possess leadership and people management skills? The person you have in mind may have the technical know-how, but competency alone is not an indicator of an ability to lead and manage.
  • What are their weaknesses? Defining a potential candidate’s weaknesses can help you assess whether these shortcomings remove them from contention or whether they can be remedied through formal training and development. 

2. Appointing a continuity partner

Ideally, a continuity partner should be an experienced adviser you know, someone you trust and, most importantly, an ethical person who will have your clients’ best interests at heart, and honour the fee payment agreement set up.

You will need to ensure that this person is adequately licenced and, importantly, has the time and capacity to take on your client base.

Factors to consider for finding the right fit:

  • What is their investment approach and how do they approach client engagement? These are important questions to ask and the answers will give you better insight into whether the partnership is viable. If, for example, you take an educational approach to managing your clients’ investor behaviour, then you would want to find an adviser who shares your approach to client care. 
  • Does the practice have the capacity to service your clients? Here you will need to consider whether your potential continuity partner has the necessary infrastructure to service your client base. What assurances can they offer to demonstrate that your clients’ expectations will be met?

3. Selling to a buyer

When it comes to finding a potential buyer for your business, cultural fit is key. Of equal concern, is ensuring that your business vision and values align, and that the standard of service the firm provides is on par with the level of service your business provides.

Factors to consider for finding the right fit:

  • Are you on the same page regarding your future role? It is important to establish both parties’ expectations around the scope of the role you will play at the business during the transition period and how long you will remain with the business following the acquisition.
  • Does the buyer have the right infrastructure in place? Consider whether the buyer has the capacity and adequate infrastructure to service your clients.
  • Are your client service expectations compatible? If you are a hands-on adviser and your clients have become accustomed to regular personal visits, it is essential to find a buyer who is equally hands-on – otherwise you risk losing clients.
  • Would you seek out their service for your personal affairs? You want to make sure your clients will be well looked after and a good way to test for this, is against your own comfort levels. If you wouldn’t go to the buyer for financial advice on your personal affairs, neither should your clients. Your clients are generally aligned with your investment approach and values, meaning if you aren’t comfortable, it is highly likely that your clients also won’t be comfortable with the adviser.

Give yourself enough time to put your succession strategy together; choosing a like-minded successor is a decision that shouldn’t be rushed or taken without following due diligence processes.

In our fourth and final part of the series, we will share how you can get started developing your succession strategy.

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