Financial planning firms are almost unanimously practising what their advisors are preaching to their clients — treating succession planning as a critical step in preparing for the future.
It’s especially true now that a growing number of financial professionals are moving into the twilight of their careers, industry executives say. But planners seem to give succession planning a relatively low spot on their priority list, according to this year’s Planners’ Report Card. That could be because many advisors feel they are still years away from retirement.
Investment Executive asked the more than 400 advisors at 15 firms to rate the importance of each category as well as their firms’ ability to fulfil it. Those advisors gave two categories — support for succession planning and purchase financing — weighted average scores of 5.7 and 6.1, respectively, out of 10 — well below the overall average of 7.1 for all categories.
Succession planning comes in different forms, but the universal goal is to make it as easy as possible for a retiring advisor to remove the equity from his or her practice while providing a seamless transition for clients, decreasing the likelihood that any assets will fly the company’s coop.
Greg Gray, president and CEO of Manulife Securities International Ltd., says a few years ago he would have considered succession planning a recruiting perk.
“Today,” he says, “I think it’s a prerequisite to be in the business. You don’t stand out as a firm just because you offer that.”
In some cases, succession support involves internal financing to help one advisor take over the book of another. In other cases, it’s acting as a go-between with one of the banks. In still others, companies will buy an advisor’s book if the advisor can’t find a buyer him- or herself.
Michael Wolfond, CEO of Regina-based Partners in Planning Financial Services Ltd., says the last option hasn’t been an issue at his company because advisors are lining up to take over available books.
“We’ve put them on our Web site and tendered them among our reps,” he says.
“There could be four or five offers on the same book. They get scooped up fast.”
He says there’s a lot of demand for financing purchases of books but PIP doesn’t do it internally. “The banks have been very accommodating to everybody.
Either the rep relinquishing the book has
decided to do financing directly with the rep taking over or I’ve been able to organize it with a financial institution,” he says.
Money Concepts Canada combines its recruiting program with succession planning, says Scott Sinclair, the firm’s president and CEO. He notes that the industry has a growing percentage of people in the mature portion of their careers who are concerned about succession. And recruitment is an important step in cultivating successors.
“The best successor comes from within — and that gives us continuity,” he says. “If we can have continuity of a branch, the advisor can have continuity and maximize his or her ability to sell.”
Investors Group Inc. takes an active role to ensure clients don’t get left out in the cold when an advisor leaves. The firm urges the retiring advisor to work with his or her successor to make the transition as smooth as possible, and IG insists that advisors use a contract to execute the process.
Departing advisors are paid, through IG itself, on a monthly basis, says Kevin Regan, the firm’s executive vice president of financial services.
“They get an income stream that’s guaranteed by Investors Group, so they don’t have to worry about the buyer making all the payments on time,” he says. “The person taking over the relationship pays Investors Group back over time, instead of in one lump sum. So the person leaving is thinking, ‘OK, good. I get a nice secure income stream.’ The person buying is thinking, ‘OK, good, I don’t have to finance this in one big hit,'” he says.
Regan says the newest wrinkle to the succession planning issue is parents looking to get their children into the business. “It doesn’t have the raw edge of the independent transaction between third parties. It’s Mom or Dad with the daughter or son wondering how they can do this,” he says.
Laurentian Financial Services does what it can to facilitate the internal transfer of books because they represent a significant piece of advisors’ net worth, says Steve Cole, Laurentian’s national sales manager in Toronto. “There’s a formal program to appraise the value of the assets, providing a fair market price. The firm will provide up to 100% financing on approved credit, with no pledge of personal assets. The firm will also find a buyer if the advisor asks it to do so,” he says.