Plan the ending before planning the handoff

When planning the transition of your business into new hands, it is important to picture how you want things to look when all the dust has settled, says John Novachis, executive vice-president and head of advisor growth and succession at Investment Planning Counsel (IPC).

“Always start with the end in mind,” he said, “and that will be a very good indicator of the work-back plan needed.”

Speaking on the Soundbites podcast this week, Novachis said advisors who are nearing retirement age should ask themselves how they want to spend their post-working life, and what is the best timeline for retirement.

Asking the questions gives them a chance to drive change, rather than being driven by change.

“One day we will exit our business,” he said. “Do we want to decide when we exit the business, or do we want somebody else — or something — to decide.”

The area of succession planning is a growing issue in the financial planning world, he said, with about $500 billion in client assets being managed by Canadian financial advisors who are near or at retirement age.

And while some are pre-emptively making plans for the succession of their businesses, the majority are not.

“Over 80% of advisors understand the importance of the succession plan, but only about 25% of them actually have done something and have a documented plan,” he said.

He believes that’s because succession planning is one of those “let’s-avoid-that” conversations. But he insists it is unrealistic to pretend change is not coming for all of us.

“If you’re not having those conversations and everybody’s just assuming everybody’s going to be there forever, well, we’re not really being honest with each other,” he said.

Succession is important for existing staff — some of whom have equity ties in the company — as well as for the clients. According to IPC research, 91% of clients want to hear from their advisor about their succession plans.

“The key to any successful succession plan is not the transaction itself. It’s the transition of the client from the senior advisor — the departing advisor — to the incoming advisor,” he said. “You will know a successful transition has taken place when the client stops calling the senior advisor and starts calling the successor advisor. It can be weeks, months, in some cases, years depending upon the relationship between the customer and the advisor.”

Planning the succession of the business is in the best interest of the client, the staff and the outgoing principal, he said.

“If I ever run into my client at Costco on Saturday morning, I want my former client saying, ‘John, you did very well by me in introducing the successor to the business,’” he said.

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This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.