The sooner advisers do the groundwork for succession plans, the better. Three who have secured the future of their firms in different ways share their experiences
Deciding what to do with an advice business in the long term has far-reaching consequences, not only for the advisers who own that firm but also for their employees and clients. It may take time to explore all the avenues and settle on the right option, but doing this way in advance of retirement is preferable to being rushed into a last-minute decision that could prove costly.
Built to last – and pay out
Last year, Ovation Finance founder Chris Budd sold his firm to his staff through an employee ownership trust. This HM Revenue & Customs-approved scheme was introduced in 2014, enabling business owners to sell their shares to a trust for the benefit of their staff. “I wanted to get the value out of my business but leave the business as a legacy,” he says. “I didn’t want it to disappear into a consolidator. I’m proud of Ovation; of the team and the clients. I wanted to look after them.”
Budd had been working on a succession plan for seven years before deciding on the EOT.
“It takes times to get it right. Too many people leave it to the last minute and have no option but to sell to a consolidator,” he says.
Having set up the EOT, Budd sold his shares to it and will be repaid from the future profits of the firm.
“This is no different from any other sale,” he says. “When I’ve been paid, the profits go to the employees.”
Budd says before selling to an EOT, advisers must get their business ready, which can take time: “It has got to carry on being successful without you in it – you have got to leave the business knowing it will pay you out. You need to set aside the time to work on your planning and build a business to last.”
Budd’s knowledge and interest in EOTs prompted him to write a book and has spawned another business, The Eternal Business Consultancy.
This helps business owners understand whether an EOT could be right for them and what they need to do to get their firm ready. Budd suggests other advisers who want to know about EOTs should go to an Employee Ownership Association meeting. He says: “Meetings are only for EOA members but if anyone comes through me, we can negotiate a meeting without membership.”
That said, not all firms are using the scheme for the right reasons. See the opposite page for issues that need to be addressed to prevent it from being abused.
In with the new
Having recently bought out his father from Glasgow-based Murphy Wealth, you would perhaps think it a little premature for its managing director Adrian Murphy to be paving the way for his own departure.
However, Murphy sees real benefit in bringing new talent into the advice sector, so has developed a graduate training scheme in conjunction with the university he attended, Glasgow Caledonian.
The university runs a finance, investment and risk course, which Murphy says is specialist to what Murphy Wealth does. However, he says graduates are not drawn exclusively from that course and he is in talks with Strathclyde Business School with a view to attracting students from a broader base.
Retirement is not on the horizon for Murphy but he has just launched a business advisory firm and is bringing young talent in so it can become increasingly independent of him, enabling him to divide his time between the businesses however he chooses.
“Developing something like this isn’t easy because co-ordinating with public bodies like universities is challenging. But we need new talent and to encourage more people into the advice sector,” he says.
“We have developed a structured learning programme through trial and error. We have had four graduates and a number of interns so far and I’m keen to see how this year’s intake goes.”
Murphy warns other advisers who are contemplating something similar that they will need to invest a lot of time in the scheme and the graduates themselves.
“Don’t take on graduates as a cheap way of getting labour because it’s a waste of your time and it’s a waste of theirs,” he says.
Every business should have a plan
When Progeny Wealth director Andrew Pereira was managing director at Quadrant Group – which Progeny Group bought in 2017 – it had always focused on succession.
“Not only because of ageing directors and shareholders, but because of people like me who are not at retirement age,” he says.
“Every business should have a plan in terms of what it wants to achieve for clients, staff, directors and shareholders, but sadly in the IFA industry, people who run businesses don’t think like that. They leave it to retirement age, look around and think: what do I do?”
A buyout from Progeny Group enabled Pereira and Quadrant founder Dominic Lobo to join Progeny Wealth and help those who wanted out of Quadrant to exit.
Pereira says that national advice firm Progeny is not a consolidator and that every acquisition it has worked on since Quadrant has been about acquiring talented individuals, not just buying firms.