Unincorporated advice firm bosses should prepare themselves for the prospect of facing future liabilities, even years into retirement, the chief executive of adviser forum Panacea Adviser has claimed.
Derek Bradley, who sold his advice company many years ago after "falling out of love" with running an advisory practice, said succession planning needed to take into account the potential for complaints to come chasing you "well into the future".
Speaking on a panel at the FTAdviser Financial Advice Forum on succession planning, Bradley said: "Company principals should also consider the potential for future liabilities."
He asked for a show of hands as to who in the room was a sole trader, before giving the warning: "If you are sole trader and you are retiring, you need to understand that a complaint could come for you five or 10 years after the event, and it will come via the Financial Ombudsman Service.
Planning is absolutely key. You need to consider what might devalue your business.Linda Preston-Todd, Sesame Bankhall Group"It is quite common practice that some people have been chased by Fos well into retirement, and in quite desperate circumstances some times."
But he also extended the caveat to those working for firms that are appointed representatives and part of large companies.
"Even if you are not a sole trader, you still should be looking at this. And if you are the acquiring firm you may find you have bought a host of liabilities along with the assets."
Consider other factors
Also speaking to FTAdviser's Ima Jackson-Obot on the panel was Linda Preston-Todd, Bankhall client relationship director for Sesame Bankhall Group. She said there were other factors that needed to be considered before you could start to sell or hand on your business.
Preston-Todd said: “You might need to invest money in your IT or hire new staff, and there is also customer demographics that are changing.
"It's not just regulation: there are a number of factors that you are now need to consider if you are thinking about selling.”
Steve McNichol, fellow panellist, said one of those factors was reflected in the new consumer duty regulations: if you make sure your clients are in the best possible position then you, too, should put your company in the best position.
He told Jackson-Obot: "The starting point is that we tell clients they need think about the future and make sure clients are in the best possible position to take advantage of retirement and it comes a time where we probably have to listen to our best advice.
"All these questions you ask every day when speaking with clients you need to ask of yourself."
Prepare the brand
Also on the panel was Velvet Mortgage and Insure Services' founder Joanna Streames, who urged attendees to consider planning as soon as possible for a future sale.
She said: "I remember sitting at an event like this when I first started hearing about succession strategies. You don't have to be wanting to make an exit soon but you do need to prepare. Once that penny drops, you think - well, you should do it as soon as possible.
"Planning is key. It is never going to exactly according to plan and the landscape in our industry can change all the time. But if you have a plan in place you can be flexible and make sure your business is more valuable and perhaps more sellable."
Likening preparing a business to the "simple terms" of selling a house, she also encouraged people to think about their brand and make things as attractive as possible.
Preston-Todd agreed: "Planning is absolutely key. You need to consider what might devalue your business. What if you are using archaic technology or you are still a paper-based business?
"These are not things that map across well to another business. These sort of things could potentially devalue your business. It is about the planing and taking a step back and revising that plan as it goes along."
simoney.kyriakou@ft.com
