In July 2024, our co-founder and director David O’Hara joined Lee Old from the Financial Planning Club to discuss one of the most pressing issues facing advisers today: succession planning.
Here’s a full breakdown of the webinar – plus an announcement of the next event we’ve got in the works for the new year.
Reviewing the options for IFAs looking to retire in the coming few years
In the webinar, David discussed the retirement trends he’s noticed within our profession.
One of the main trends he’s spotted is the rise of consolidators. In plain terms, these are large advice companies that buy up small firms, giving them support and structure but often compromising their independence in the process.
David reflects on this trend, saying, “The focus for advisers in the situation is on the question, ‘What’s going to happen to my clients going forward?’ IFAs are starting to understand that if their client is going to be majorly disrupted by a move, they’re going to get a tap on the shoulder in Waitrose or Sainsbury’s asking what happened.”
This brings up an important point: when you retire, it’s not just about gaining the payout you deserve – it’s also about ensuring your clients’ long-term wealth journey is in safe hands.
Answering the question: What are the key steps an adviser should consider before selling their client bank?
David defines these steps as:
- Ensuring you have impeccable client data. In line with Consumer Duty, anyone taking on your clients will need to ensure you have up-to-date records in place.
- Deciding how you want to retire. Do you want to travel? Have hobbies? Wanting to retire without a clear plan could put your emotional and financial wellbeing at risk.
- Considering phasing your retirement – take it easy, gradually reduce your workload, and sell when the time is right.
- Preparing yourself and your clients. Going “cold turkey” could make them worried and also prompt you to rush your retirement when you aren’t personally ready. It’s wise to give clients 18 months’ warning of your retirement date.
Executing the sale of your firm over the appropriate timescale
In the webinar, David emphasises that there are two main types of sale: internal and external.
He says, “Internally (so, if you’re selling to your network) the time frame can be very small, because the buyer already has the risk on your business. If you’re selling to an external buyer, they’re going to want to go through the compliance – there’ll be an information gathering exercise. You need to give yourself time.”
David goes on to say, “Prepare your clients 18 months in advance, then they’ll understand you will be handling the transition and it’s a much smoother process. Client retention is the number one priority – for both you and your buyer. If clients decide to walk away after being passed to someone new, this could affect the eventual payout of the sale.”
The point here is very important to remember: priming your clients and helping them understand where they’ll be once you retire is one of the most important aspects of a sale. Taking your time with this process may leave you with greater peace of mind as an adviser once you do retire.
Understanding the true value of a client bank
Lee asks David: “Where does the true value of a client bank lie, and how do you determine its worth?”
David responds, “Clients are currently valued at the ongoing income they generate for the adviser. At the end of the day, the recurring income is the value of the business.
“Let’s not forget that another determining factor nowadays will be ongoing servicing. The FCA’s latest guidelines and the Consumer Duty all point towards the fact that, as a buyer, you need evidence that a client has been serviced properly on an ongoing basis.”
Here, Lee raises an important supplementary question: what about clients of a certain age who are no longer accumulating wealth?
David responds: “Some buyers have clauses banning family groups and clients over 75 – or sometimes even 65. Sometimes, even if they are accepted by a buyer, these clients wouldn’t make up part of the capital payment, or in other words, wouldn’t contribute to the value of the client bank.”
Examining the question: What valuable lessons have you learned from past buyout experiences?
Straight away, David answers this question: “To manage expectations.”
“Gain a clear understanding from the buyer about what they want to achieve and where they want to go. At the end of the day, you’re selling your life’s work and this is about being able to let go of the sentimental aspects and focus on the goal.”
“We’ve had instances in which health has dictated a retirement, which are typically smoother where a buyout is concerned. But we’ve had others where an adviser thinks they want to retire, then realises they don’t – in those cases you need to make the buyout agile enough to suit what they want to do.”
Answering audience questions
At the end of the webinar, we had time for questions from our audience. Let’s take a look at a few of the questions they asked and the insights David provided.
1. What top piece of advice would you offer to an adviser considering retirement?
“Have a clear plan of what you want to do in retirement.”
2. In addition to a multiple of ongoing fees, is it reasonable to add a sum for potential new business when selling?
“Yes, you can expect that. It’s not unreasonable to have an income share on any new business that’s written, especially while you’re waiting for the latter 50% of the payout.”
3. What specific succession planning options are there?
“Option one is to sell to a vertically integrated consolidator. Number two, sell to an adviser you know and trust. Three, join a network like ours and sell within that network. Four, give your clients to an adviser who already works within your business.”
4. What would you recommend to someone like me, who is 20 years away from retirement and not wanting to face the same challenges as my retiring peers?
“Realistically, because of the way adviser demographics are moving, I suspect that in 20 years there will be easier options.
“It’ll be the norm to have a full roster of records, evidence of client servicing, so you’ll be able to more easily demonstrate to a buyer why they should take on your clients. And in terms of options for selling, while 20 years is a long way in the future, I think independence will always be key.”
5. If I sell my clients to another firm, what should I be wary of?
“For me, it would be watching out for firms that we call ‘grey independent’. That is, businesses that proport to be IFAs but have a deal in the background with a discretionary fund manager (DFM) or even their own, employed DFM.
“They claim to be independent and not to disturb your clients, but they move your clients into a fixed proposition. While this might not be the worst thing in the world, being aware that it might happen and preparing your clients is crucial.”
6. Does technology play a part in succession planning and its value?
“Of course. It comes down to what information this technology can provide to the buyer, and the ease in which clients can be served using tech. It’s about how you consolidate all the information on your clients into one area, to make it easy and efficient for your buyer to service those clients. It comes back to good record keeping.
“Ultimately, tech will have a bigger part to play in the valuations of advice businesses going forward. They want to look at what tech is already being used and how it’s being leveraged.”
Our next webinar with the Financial Planning Club will be coming in the new year
Due to the success of our most recent webinar with the Financial Planning Club, we’re planning more of these events for 2025.
Our next session will cover the three most important challenges facing IFAs in 2025. The date is yet to be confirmed, so make sure you sign up to our mailing list for the latest news.
And, to experience the full July webinar rather than just the highlight reel, go to YouTube to watch for free.
Get in touch
To find out more about joining us, email hello@corbelpartners.co.uk or call 01925 637891.
Please note
This article is for general information only and does not constitute advice.
