This can sometimes only become apparent when an owner starts thinking about their exit strategy.
Because a succession plan can take years to execute there is no time like the present to start working on it. But where do you start?
Based on our annual study of more than 700 advisory firms from around the world, and the many conversations we have with people on all sides of succession planning, we recommend several initial considerations.
You can start with basic things such as making sure that the accounts are up to date and healthy, revisiting risk controls and processes, refreshing client and business data, and so on.
These are table stakes that any new owner will demand so having them permanently ready is a must. This will be housekeeping for some businesses; others will need to work hard to meet the minimum standard a buyer might expect.
One of the most common deal breakers is misalignment of investment philosophy between incumbent and new owners. If your investment philosophy is robust, time-tested and well documented, it will be easier to persuade the new owners to adopt or incorporate it into their model. Doing so will smooth your clients’ transition to new ownership.
Clients value security and peace of mind over everything else their adviser offers.
We know from our studies of thousands of investors around the world that they value security and peace of mind over everything else their adviser offers. You have earned your clients’ trust and much of the value of your business is tied to this intangible asset.
To help any new owner understand this value you should differentiate and document your client service proposition and how you systematically build clients’ trust.
Having helped them plan for their future, they should understand and support your efforts to plan for yours if you communicate them well.
Bring the topic up in face-to-face meetings in the years or months before any transaction in on the table. Even solicit their input on how they would like to transition to be managed. They will appreciate your openness which will smooth their and your transition.
A successful financial planning business promises a rich stream of ongoing revenue and the UK market remains awash with private-equity-backed acquirers. Many of you will know this because you have been approached by one or more of them already. For some businesses, one of these large acquirers will be the ideal match.
For others, a local takeover or merger might be more appropriate for clients and employees. If you are unsure which option is best, there is a large selection of brokers who specialise in matching buyers and sellers.
As you think about potential suitors, consider the financials alongside other important elements.
You may be offered a good price and be given reassuring overtures about continuity and loyalty to clients and employees, but be sure they are genuine commitments.
Will you be able to look your (former) clients in the eye if the new owners let them down? Equally, how will your employees be treated by the new management? Ultimately, you should judge the new owners’ credentials by your own high standards.
An alternative to looking outside is to find new owners from within. This can lead to a smoother transition but does not guarantee plain sailing. The immediate challenges are finding the right person or people to take the reins, establishing how they will fund the deal, and bridging the skills and knowledge gap between them and you.
The day you hand over the keys to the office is not necessarily the day you retire. The new owners will likely insist you stay on to manage the transition.
How will you feel as an employee of the business you built? How will you describe your new role to clients? Will you know where to find the annual leave request form? How will you handle any objections you have to decisions made by the new management? It’s better to consider these points now than let them consume you at the point of transition.
Here's a quick five-point plan to get your succession plan rolling;
Martyn Chappell is head of UK wealth management at Dimensional Fund Advisors