Many advisors are seizing the opportunity provided by recent market volatility to discuss risk with clients. Now may also be a good time for advisors to review their own risk regarding their practices.
A business continuity plan prepares your practice for the unexpected, when a gradual transition via a succession plan is no longer an option, said Roland Chan, CEO at FindBob, which provides digital succession and transition management. Chan spoke at the virtual summit hosted by the Independent Financial Brokers of Canada (IFB) on Wednesday.
A continuity plan ensures that your business lasts through your clients’ lifetimes, so is part of putting clients first, he said. Having such a plan also helps preserve your business’s value and can act as a foundation upon which to build a succession plan.
However, most IFB members have no business continuity plan, Chan said. FP Transitions research finds that less than one-third of advisors have continuity plans, despite the average age of independent advisors in North America being 59.
The lack of such planning is the largest threat to independent advice, Chan said. “We need to do far better.”
His firm’s research shows that advisors avoid continuity planning because the process is daunting. Advisors don’t know how to get started, he said.
To help rectify that, IFB partnered with FindBob to provide IFB members with a business continuity builder — part of its Coming Up Next platform for members. While Chan demonstrated the builder’s features, he offered advisors tips as they create their plans.
For example, he suggested advisors focus on strengthening their financials. A continuity partner (or successor) must perceive the business as a going concern, he said, identifying opportunities to pursue within the existing business. Further, a profitable business qualifies for better financing and attracts buyers, he said.
Advisors can also build perpetuation habits, Chan said, which means establishing regular business valuations, and regularly reviewing and updating the plan’s instructions.
He also suggested that advisors avoid the “mini me” when it comes to a continuity partner.
“You may have to relax some of the criteria you have,” Chan said. “The person taking over your business is likely to have a completely different skill set than you had when you were building your practice.” He suggested prioritizing values instead.
Finally, Chan urged advisors to use business continuity as a “sophisticated” way to fuel growth. For example, they could educate clients with small businesses about continuity planning or act as continuity partners for their peers, potentially resulting in new business.
For IFB members
During the presentation, Chan was asked how much it costs to use Coming Up Next for one-on-one support to build a continuity plan, find a partner and file a continuity agreement (the IFB platform hosts the plan).
“There is no cost,” Chan said. The builder is provided free for all IFB members.
Nancy Allan, IFB’s executive director, said IFB doesn’t benefit financially from the builder, which is a “value-added member benefit.” The IFB isn’t involved in any transactions associated with the tool, she said.
“This is something we are providing because we saw this as a very important issue in the industry,” Allan said. “We really wanted to foster a culture of preparedness among advisors.”
Chan said the possibility of referral fees exists but isn’t a focus. For example, an instance of his firm offering a professional referral to an IFB member who requires legal or tax help with a continuity plan transaction may involve referral fees, he said.
However, advisors would likely have such professionals in their own networks.
“We’re really just interested in helping support your journey,” Chan said.