Employee share plans grow in succession arena


By Julie May

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Financial advisers assessing their succession plans are more frequently seeking to introduce employee share plans as part of their exit strategies, an industry consultant has said.

Succession Plus founder Craig West said he was working with a number of firms that were looking to sell and exit, pass the baton to their children or initiate employee share plans in order to lock in key people.

“Succession planning is picking up massively across numerous professions including financial planning, and that is largely a consequence of asset levels finally coming back to where they were prior to the global financial crisis (GFC),” West told financialobserver.

“Baby boomers who were turning 65 put their exit strategies on hold post the GFC as many couldn’t afford to retire, but now that interests have aligned, they can finally reassess their retirement strategies.”

He said as many planners were now well past 65, they were looking to take immediate action, and one of their major considerations was around the worth of their business.

“The industry has consolidated a lot during this period,” he said, emphasising many one-man bands had merged, and a lot of practices now comprised three or four partners or even new business arms for those that had joined forces with accounting or other financial services businesses.

“Mergers and acquisitions in this area have seen the value of firms increase, but at the same time it has made the ability to sell a little more complex.”

West said advisers had to be more creative to sell their practice in today’s environment, pointing to banks being a lot more restrictive around lending to solo operators and sometimes to younger, less-experienced planners.

“Advisers have to have a more creative, interesting and outside-the-box approach to succession these days,” he said.

“You can’t just advertise your firm, have someone turn up, do the due diligence, sign a cheque and hand it over.”

He said for that reason employee share plans were becoming increasingly popular, with more instances of remaining partners buying stakes from outgoing advisers and many younger planners interested in the opportunities for equity ownership.

Another trend was for planners to sell 50 per cent of their practice today, 20 per cent in a few years and the rest at some not-too-distant point in the future, he said.

“This enables advisers to transition out of the business over a period of time, while helping new owners meet their financial commitments, as the transaction happens in stages,” he said.

He emphasised that to execute a desired succession plan successfully, the key was to start early.

“It’s a lot easier to start a 10-year plan at 50 than it is at 65,” he said.

Further, he said Succession Plus would be expanding into the United States this year as the baby boomer market was facing the same issues as in Australia, but on a much larger scale.

Financialobserver is hosting a Succession Planning Day in partnership with Succession Plus in Melbourne, Brisbane and Sydney on 9, 11 and 13 February respectively.

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