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Developing your advice business

Part 4: The ins and outs for developing a succession strategy

In the final part of the series, Daniel van Andel, head of IFA Proposition, discusses some of the steps to take to start developing an effective succession plan.

Once you have defined your goals and objectives for succession; weighed up the options available against what you want to achieve to determine the best route to pursue; determined how much your business is worth and where the value lies; and sketched a profile for your ideal successor, you have the building blocks necessary to start developing an overall strategy for your exit from the industry.

No two succession plans are the same; the decisions you make based on your preferences and circumstances will largely shape the structure of your plan. In the case of true succession, your plan should revolve around attracting, developing and retaining the top talent in your business. This means identifying the key roles central to growing the business and outlining a career path for these roles. An internal succession plan should also define how you will incentivise younger advisers, manage the leadership transition and how the transfer of ownership will occur.

In the case of a merger or the sale of your busines to another financial services provider, your strategy would centre more around the buy-sell agreement, transition timelines and defining the role you will play during the transition period.

Defining your exit

Whether you ultimately choose internal succession or to sell your business, below are four key steps to incorporate into your exit strategy.

1. Determine your timelines for transition

A succession plan is incomplete in the absence of a hard exit date for true succession, or a general timeline for the sale of your business, including the  transition period and the milestones you want to achieve before moving on. Make sure you give yourself enough time to enable the adequate transfer of leadership responsibilities, like managing client relationships and staff members, to your chosen successor. Detail how the succession plan will be triggered under different circumstances – at retirement, should you become disabled or at death.

2. Define your share distribution methods

A share distribution programme is a good way to keep top performers incentivised and a key strategy to rewarding and retaining your talent. Shares can be distributed in several ways, but it is best to consult with a legal and tax professional to help you determine the best method for your business.

3. Prioritise human capital development

Developing your human capital is a critical component to any business, helping to retain talent and ensuring an effective succession plan. Make mentorship and professional development a priority, and create a blueprint that clearly defines the key roles in the business and how these roles will drive growth in the future. From there you will be able map out a career path for your key employees.

4. Map out your communications plan

Be sure to plan for how you will communicate your succession plan and succession to clients and staff members. It might be a good idea to set up meetings with your key clients and personally introduce your successor to them to help smooth the transition and ensure the new relationship gets off to a strong start.

Be open to getting advice

Planning for succession is not a once-off event, but rather a journey that takes time, requires careful consideration to a wide range of variables and plenty of research. It can get complicated; be open to seeking the counsel of a financial and legal adviser who can advise on the tax and legal implications of your plan. 

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