the watch of time

One of the most important duties of anyone leaving a business which is intended to continue in some manner is succession planning. Especially if family run, or involving tangible goods, the process should be easier: there is familiarity, incentive, and more solid inventory to work with in valuation. However, in determining fair valuation of an intangible, service-oriented ‘book of business’, the process is more complicated and subject to interpretation.

Take the example of financial or insurance services.

In my own case, after working for more than two decades for a large Canadian financial services organization, I found myself in 2013 finalizing a decision to leave the business. Fortunately, my company had established a basic program which provided the departing consultant an income, based on investment assets managed, for a specified number of years, paid through the company; other consultants taking on portions of the client base reimburse the company for that period. Thus, a stream of income for the departed consultant, and eventual trailer income for the consultants taking over, the latter benefitting in the short term based on new business and market value appreciation.

According to the May issue of The Insurance and Investment Journal, many financial advisors continue to face uncertain business transition prospects insofar as succession. Moreover, clearly many do not have the benefit I had of working with a company with a process in place. An author/market coach in Toronto feels, “clients end up with better succession planning than the advisors who counsel them”. While only 12% of clients do not have a succession plan, more than 50% of financial advisors don’t have one for themselves.

One implication for advisors without such a plan is that, in the event of some issue arising preventing being able to work, clients could be left in the lurch, not to mention the companies or agencies they work for. A resulting different level of customer service could have negative consequences.

According to Financial Advisors Association of Canada’s organization ADVOCIS, in a study conducted late last year:

• Almost 45% don’t intend to put a succession plan in place until close to retirement
• A little over half would put a ‘contingency’ plan in place if unable to work
• 16% would expect a partner to take over
• 15% have no plan and hope nothing happens to them

In many cases it’s difficult to imagine, and therefore prepare for, letting go, in such a relationship based business. It is also viewed by some as “the end of their career, rather than the beginning of the rest of their lives”. (Fortunately for me, I was not part of that camp.)

The author/coach suggests:

• Prepare financially, realistically, based on future lifestyle expectations, and getting assistance with evaluating what one’s practice is worth
• Prepare for the emotional adjustment, perhaps by looking to become a mentor or coach
• Pick an exit date
• Select a comfortable transitioning out process, perhaps keeping some clients at least initially, or involving colleagues in the same organization
• Put the plan to paper in a professional manner
• Have the exit plan in place, possibly with organizational assistance

In my own case the transition to exit process took about six months from the time to committing to an exit date. I feel this has worked out reasonably well for all concerned.