'Involving all stakeholders is key in succession planning'

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'Involving all stakeholders is key in succession planning'

Marcovici points to so-called 'circular economy principles', which he says are of great value to financial advisers thinking about securing their succession.

Circularity, in broad terms, means both avoiding "waste" and finding value in human resources within families and businesses.

He says applying a certain set of principles can benefit clients, employees and the owners of the advice business alike.

Marcovici tells FTAdviser In Focus how he believes financial advisers should go about planning their succession.

Philip Marcovici is co-author of Circular economy principles for family business and wealth stewardship

 

 

If the future generation of advisers are enthusiastic about the succession plan, this is the first step to success – it is that generation of advisers who have to make it work.

 

 

FTA: Why should all advisers have a succession plan in place? 

PM: A succession plan is critical to the clients of financial advisers. While that reason alone is enough to encourage that all advisers have a succession plan in place, it is easy to see how an effective succession plan will also benefit all stakeholders in the financial advisory business itself.

It is important that this can be achieved in a way that reflects circular economy principles, which means that, among others, resources will not be wasted.

The succession plan can include interesting new roles for senior, retiring advisers, allowing them to both mentor their successors and retain client-facing roles while stepping back from full-time engagement, which is one example of a step that would be in the interests of both clients and the advisers involved.

FTA: At what point in time in a business's life should this plan be put in place?

PM: The earlier the better. What is clear is that an effective succession plan is part of a strategic plan and will incorporate elements that better align client interests with interests of the advice business and of each adviser.

Having an effective succession plan is also an opportunity to communicate with clients and to show a focus on the interests of those clients. A good succession plan is not only strategic, but it can be a marketing tool.

FTA: You have written a book about succession planning in family-owned businesses, can you explain your motivations behind that?

PM: I have worked with many wealth and business-owning families around the world and I am convinced of the important benefits they bring to economies and to their communities.

But there are many issues that typical families face, and the most important thing about succession planning is early and open discussion.

Knowing this, I like to encourage dialogue and find that transparency on succession is the most important thing for any family to consider.

If all stakeholders have an interest in things working out well, the chances of things working out well are greatly improved.

Getting everyone’s input on how to make succession work is key, and for an advice company it is all the more critical.

If the future generation of advisers are enthusiastic about the succession plan, this is the first step to success – it is that generation of advisers who have to make it work.

And for the earlier generation of advisers, a strategy that allows them to achieve their personal ambitions, financially and otherwise, combined with roles, albeit part-time, that allow them to maintain client relationships can be a successful one.

FTA: What are the most common issues to look out for when forming a succession plan?

PM: There are many issues that come up in formulating a succession plan, but like in any family business, the question of ownership versus stewardship is a big issue.

And as this relates to the succession plan, how the retiring generation will be compensated for what they built is always an issue if this is not clearly provided for.

There are benefits of an approach that keeps the founders fully involved, albeit on a very part-time basis and in new roles, and where the focus is on ensuring that there is real continuity in client relationships.

It is not only the expectations of the founders that need to be managed; the younger generation of advisers also needs to be clear on the plan and of their roles.

FTA: What is a good strategy to overcome these issues?

PM: Alignment of vision in relation to the succession plan is key. Having the mechanisms for succession be part of the strategy and strength of the advice business is a great way to approach things.

FTA: Is it a good idea to build a business around your family?

PM: Families are not always easy, but family businesses, including in the advice area, have much to offer.

It can be a good idea, but only if there is a fit with what the relevant family members are interested in achieving.

FTA: How do advisers protect their business's profitability when passing it on?

PM: There are many ways of achieving a cost-effective handover of the business while protecting profitability.

The most important component will be an alignment of interests, if all stakeholders have an interest in things working out well, the chances of things working out well are greatly improved.

carmen.reichman@ft.com