As the average age of advisors surveyed in In-vestment Executive’s 2008 Dealers’ Report Card edges upward, succession planning is becoming increasingly important — both for advisors looking to retire and for their firms. Not only does a strong succession program help retiring advisors monetize their books, it can also be a recruiting tool for dealers targeting younger advisors interested in buying books of business.
“I look at those who are leaving and realize that there’s too much to figure out on our own about succession,” says an Assante Corp. advisor in Alberta about the importance of having a formal succession program. “It’s as if I wanted to learn how to drive and all my dad gave me was a map.”
“A contractual succession plan is provided,” adds an Assante advisor from the Prairies. “And you can make your own softer, more flexible one as well. On the buying side, the firm makes sure it has people looking to sell and that we are able to buy books.”
Mississauga, Ont.-based PFSL Investments Canada Ltd., the dealer with the highest score in the succession program category (9.5), also has a formal program in place. A PFSL advisor in Alberta describes it as “an automatic process” in which the book automatically moves up to the departing advisor’s manager. “Because of that,” he says, “I know my clients are taken care of.”
A number of PFSL advisors do have arrangements in which the business goes to their spouse or a family member. In addition, advi-sors at the mutual fund dealer who have attained a certain level of seniority can sell their businesses.
But having a formal program in place isn’t essential for advisor satisfaction, as witnessed by the high scores advisors gave both Montreal-based Peak Financial Groupand Ottawa-based Independent Planning Group Inc., which ranked second and third, respectively.
IPG president Vince Valenti believes an “ad hoc” system works best. “Every situation and every book is different,” he says. “You can try to systematize it a little bit, but you end up bending the rules here and there. So, it ends up being ad hoc anyway.”
But an informal approach doesn’t mean there isn’t support provided. Peak’s president and CEO, Robert Frances, says the firm offers some guarantees and helps advisors finance the acquisition of a departing advisor’s book. As well, the transition team prepares all documents, monitors transactions for the first month and trains assistants. (See page C12.)
Mark Kent, president of Calgary-based Portfolio Strategies Corp., agrees that flexibility is needed in succession planning: “We are working with entrepreneurs, and each individual advisor may have a different way of valuing his or her book. Some may place more value on insurance renewals; others may have books that have very little insurance, but they consider it an opportunity for the buyer to market insurance to the clientele whom he or she just bought.
“We don’t have a firm policy,” he adds. “Advisors bring us into the process if they want.”
Regardless of the way a firm handles succession planning, it’s clearly an important issue for dealers.
“If we want to retain a practice within the firm, we need to make available a succession plan,” says George Aguiar, president and CEO of Toronto-based GP Wealth Management Corp. “So, one advisor can sell his or her practice to another advisor within the operation here. It’s been our experience that a practice will generally [be handed over] from one advisor to another within the firm. It’s unlikely that it happens outside of the firm.”
GP is still in the process of developing a succession program for its advisors, which may explain why its rating dropped so drastically year-over-year.
Advisors, too, are gradually realizing the importance of succession planning. IPG has held three or four succession planning workshops in the past year. “They were all packed,” says Valenti, noting that most of the IPG advisors who attended are starting to consider retirement. “They’re not there yet, but they’re getting themselves ready for that inevitable time.”
Ken Rousselle, president and CEO of Markham, Ont.-based Professional Investment Services (Canada) Inc., expects 30%-50% of PIS’s advisors to “transition” their businesses over the next five years and notes PIS has financed a couple of transactions in the past few months. But with lowly 5.9 rating in the category, the dealer clearly needs to do more in this area.
@page_break@Mississauga, Ont.-based Invest-ment Planning Counsel‘s succession program has been running full steam ahead over the past year and a half — about 100 books of business have changed hands during that time, says IPC president Chris Reynolds. He expects that trend to continue as aging advisors retire over the course of the next five years.
IPC has one staff person dedicated to succession planning. In addition, an area on its Web site is devoted to the subject and includes templates of the required documents. IPC also helps advisors finance such transactions.
Reynolds says finding buyers within the firm isn’t a problem: “There’s huge demand for books; it’s almost an auction process. In the Greater Toronto Area, we had about 30 bids for a book of business.”
At Toronto-based Desjardins Financial Security Investment Inc., Steve Cole, regional vice president, sees the firm’s succession program as more than a retention tool; it is a recruiting perk, as well.
“Because we have a recruiting slant that favours a youthful emphasis,” he says, “it is a tremendous tool for us retaining our senior advisors, because they see us recruiting potential buyers of their business.” IE