Mumbai MF distributor, Prakash Thakkar introduced his daughter to the world of mutual fund distribution when he suffered a heart stroke in September 2018.
The stroke made him realise that though he had financially secured his family against such an event, he had not guarded his clients against this eventuality. After he recovered from illness, he immediately started training his daughter to ensure smooth transition of his business. He told Cafemutual that now his daughter is capable of handling the business.
A white paper published by United Planners Financial Services, US based broker-dealer (national distributor in Indian parlance) said that around 93% of advisors in US do not have a legally binding contract in place for their succession. The report said that advisors are so busy growing their practices that they have not taken time to focus on exit strategy. Though the findings represent advisory trends in US, it has a great relevance in Indian context too.
The white paper has suggested a few tips on how to solve the problem of succession. Let us look at them.
Decide if you want partial succession or full scale transition
First step towards succession plan is to decide your preferred exit strategy after retirement.
The white paper suggested two types of exit plans: partial succession or full-scale transition. A partial succession lets you continue working with clients while handing off most management duties to a successor.
In a full-scale transition plan, you hand over all aspects of the practice to a successor. Alternatively, you may simply choose to execute a continuity plan that provides an income to your family during what will likely be the most overwhelming time of their lives.
Mumbai MF distributor Paresh Shah whose daughter is his successor has put in place a contract stating that she will take over the business and give ‘x’ amount to him every month after his retirement.
Find like-minded and trustworthy successor
Choosing a successor is often the most difficult part of the process as most distributors want to place their clients with someone who holds the same values, standards and planning approach, the white paper said.
The first step should ideally be to hunt for an in-house successor like a family member, business partner or a junior working with you.
Paresh Shah told Cafemutual that he always wanted his daughter to take over the business. So right from the beginning, he took his daughter for client meetings and industry events to prepare her for the responsibility.
Another way is consolidating business with other MFDs. Shobhit Gupta of Money Gain said that his company offers three exit routes to the family members of deceased distributor – selling assets, managing assets for fees and mentoring a family member to take over the business.
Keep clients in loop
It is important that all your clients are aware about your succession plan. They should know that you have made provisions for the future, which will give them a sense of long term financial security.
MFDs can also begin relationship building programs for clients and successor. One way to do it by hosting dinners to introduce clients to your successor and joint meetings with your clients for at least a year prior to an actual planned transition. These meetings will help clients get comfortable with the successor.
Mumbai distributor Chandulal Vasa who has trained his son to take over this business said, “My clients were very well acquainted with my son as he has been involved in business for quite some time now. Over the years, I have trained him on how to deal with clients.”
