‘Raise your hands if you have urged your clients to write a will,’ asked Amit Trivedi, noted trainer & author while starting his session at Cafemutual IFA event (CIFA) 2019. Most advisors raised their hands. However, when he asked them if they had planned their own succession, most of them said ‘no’.
Talking about his successful recovery from a critical health situation, he urged advisors to start thinking about succession planning to safeguard their family and clients against unexpected situations. He also shared a step-wise succession planning process.
Step 1: Identify who can take-over
This depends on the type of your business, said Amit. Succession planning is easier in case of firms as you can reduce your stake in the business progressively.
If you run a sole proprietorship model, check if the next generation is ready, willing and capable to take over the business. If yes, they can be your successors otherwise you can consider selling your business to your employees, as they will be well acquainted with your business and client book. If no such an option is available, you can sell your business to other IFAs.
If you have a partnership model, the other partners can take over your book. Globally, advisors have started inducting younger partners who can take over the business from them later to ensure continuity.
Step 2: Transfer process
AMFI has an extensive guideline for transferring the entire asset book to other advisors. However, if you want to transfer part business, the process is a bit tricky, said Amit. Asset transfer in case of a firm simply involves reducing your shareholding in the firm.
Step 3: Valuation
People only pay for what the business can generate, said Amit. This depends on
- Asset size – Larger the AUM higher the valuation
- Client mix- Do you have a healthy mix of retired (they have a large corpus, which will reduce over time) and youngsters (small corpus, which will grow as their earnings increased), HNI v/s retail
- Asset mix – The equity – debt mix in your assets, equity assets earn more and may command higher valuation
- Client engagement – Client retention is another important factor influencing valuation
- Staff longevity – How long have your team members been working with you and how well do they engage with your clients also determines your valuation
- Your client acquisition rate and process also affects the value of your business
- Having a distinct personal brand for your business or having a niche increases your business’s valuation
Step 4: Identifying your successor
Amit shared three important characteristics of a good successor through an acronym ‘TAP’
- T- It’s a trust based business, so your successor should be high on integrity and knowledge
- A – He should be able to adapt to the dynamic changes in regulations, business and operations easily
- P – He should be a people’s person who can form an emotional connect with your clients
He concluded the session by advising IFAs to think about succession seriously if they have crossed their 50’s because having a solid succession plan makes your retirement easy and ensures that your clients are not orphaned.
