Helping advisors pave the path for succession

One independent wealth management company is taking steps to support advisor-owners getting ready to let go

Helping advisors pave the path for succession

If there’s any silver lining people can gain from the pandemic, it’s probably the opportunity to reflect on what’s important. Amid the initial reports of coronavirus infections and depths across Canada and worldwide, interest in life insurance and estate planning grew. For many near-retirees, the weeks of extended lockdown have provided a chance to go through a retirement test drive.

Even advisors are experiencing major epiphanies. Aside from realizing the possibilities of remote work and digital services, they’ve started to think about one of the most important issues they guide many clients through, but hardly consider for themselves: succession and exit planning.

“Sometimes people view selling the business as a failure,” John Novachis, executive vice president for Corporate Development at Investment Planning Counsel, told Wealth Professional. “But it’s actually a culmination of the success of running the business, where someone else can see the value of what you’ve created. So it’s very, very important to think about the practice as a business.”

Planning an effective baton pass

From Novachis’ perspective, an effective succession strategy requires three key elements. First is the business continuity plan, a document that outlines contingencies to execute in case of unforeseen events, whether it’s a natural calamity or a specific health event that affects the advisor.

“Our intelligence actually suggests that in the U.S., there’s legislation coming out that will require advisors to have something like this in place, because they’re providing an essential service,” he said.

The second element is the actual succession plan, also referred to as the replacement plan, which requires the advisor-owner to develop the talents in their business. That’s not just the individual who will succeed them, Novachis clarified, but also the entire group around the business that needs to continue to develop, experience growth, and ultimately have proper successors in the various roles that exist.

Finally, he said advisors should think about the exit plan, which lays out what must happen for an exit to occur and for the advisor-business owner to maximize their enterprise and shareholder value. That piece should consider matters such as tax consequences, shareholder implications, estate planning on the sale of the business, and other issues.

“A good solid plan should address all three of those areas,” Novachis said, underscoring the need to have everything in writing and shared with the people concerned. “Rather than having it in their head or expressing it as a general idea through loosely written memos, I would encourage all advisors to have a well-documented, fulsome element that contains these three things.”

Bridging the succession gap

While IPC is agnostic in terms of the approach its members ultimately adopt, it offers several programs to support advisors’ efforts at preparing their business for their eventual succession or exit. One program involves connecting two peers and helping them put their businesses together, which has worked very well for those operating in smaller local towns.

“The second is the associate program,” Novachis said. “We’ve created a forum called the IPC Next Generation Working Group that includes senior advisors and the associate junior advisors that they’re transitioning their business to. Through quarterly meetings and online virtual chats, they share their best practices and experiences as the practice changes hands … It gives everyone involved a sense of comfort, knowing they’re not alone in their challenges.”

The third initiative, just on its third year of existence, is the strategic transaction program. One of the main challenges of an associate advisor taking over a practice is capitalization. To satisfy an advisor-owner’s need to monetize their business and make sure the successor has skin in the game, associates would generally have to take on significant debt, which could drag on their efforts at professional development.

But in certain instances, IPC can act to acquire the business from the senior advisor, and the associate would work under the auspices of an IPC branch following the IPC wealth management process. A long-term transition plan between the selling advisor and the associate would also be put in place. “It works great for clients as well, since it ensures smoother continuity of service,” Novachis said.

That commitment to continuity has not blinded IPC to the benefits of certain disruptive trends, which include an industry-wide push for diversity. The company has signed the UN Women’s sponsorship pledge, as well as the recent homegrown Black North pledge. Those initiatives, in the end, can ultimately improve advisors’ ability to plan for a client-focused future.

“At IPC, we believe that everybody should have access to advice to make smart decisions,” Novachis said. “We’re extremely excited about the opportunities to increase representation within our network, and reach communities of people who may need to see themselves reflected in the professionals they work with.”

Leaving a strong legacy

For the average veteran advisor, even taking the first step can be difficult. Many are too involved in the day-to-day work to plan for the future. Some are too close or too invested in their life’s work, not even wanting to think about how much money someone would have to pay for them to let it go.

But as Novachis pointed out, advisor-owners shouldn’t think about exit planning as a strictly financial transaction. Rather, they should see it as the chance to leave a legacy, as well as ensure that the individuals and families they serve are protected long after they themselves are unable to.

“I would encourage all advisors, at the end of the day, to not deal with this matter of succession planning alone,” he said. “There are people and organizations who can provide professional support. At IPC, we want to show advisors that it’s a complete cycle, from building the business to reaping the rewards and freedom from it. Beyond that, it’s also important to ensure the long-term health of their business and keep the larger industry vibrant.”


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