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Independent view

We are in a business which is heavily dependent on good relationships

with our clients. These relationships tend to be long term. That is

fairly obvious, I suppose, because the products and services we

provide tend to be long term.

There are few things better than to sit down with a customer you have

known for many years to review plans that have been in place for many

years. I am certain that some IFA firms will be able to claim

relationships that go back 20, 30 or even more years. Almost a cradle

to grave service. Client loyalty is definitely an important issue in

the IFA/client relationship.

So what happens when the IFA reaches a point where they want or have

to retire? Who will look after their clients in the future? The

subject of succession planning is an important one and no doubt one

that will occupy the minds of many IFAs. After all, it is suggested

that the average age of IFAs is the mid-50s. With a 10-year or

shorter time horizon to retirement, the IFA really does need to

consider his or her clients&#39 future.

At the Sofa conference in Birmingham at the start of December, our

guest speaker from Australia pointed out that successive planning is

not an issue unique to the UK. He was aged 32 with one partner of a

similar age and two older partners in their early 60s. The succession

plan in his firm was pretty clear cut.

Some IFA firms are capable of being sold and the proprietor may have

a reasonable expectation of obtaining a capital sum for his business.

Usually, however, that payment might be restricted to a relatively

low multiple of renewal income, say, two or three times. Many

potential purchasers are reluctant to pay substantial capital sums

for a possible future income stream. After all, business based on

close personal relationships might well disappear with the arrival of

new personalities.

One common problem that needs to be addressed is that the IFA

reaching retirement is also very concerned about how his clients will

be treated in the future. Some IFAs fear that the incoming owners

will dump less profitable clients in favour of the more substantial

ones. Quite natural on a commercial transaction but not what the

selling IFA wants. After building a long and trusting relationship,

you do not want to see clients let down.

A colleague of mine built up his IFA business over 25 years and, as

well as being offered a quite derisory value for the business, was

fearful that some of his clients would be put out to grass as soon as

he left. He really felt bad about the prospect of poor or

non-existent service to his clients in the near future.

An alternative to the capital buyout is the kind of agreement we have

struck. We will, over time, absorb his clients into our firm. They

will get time to know us and he is able to look after them during the

years up to his retirement.

In addition, the two firms benefit from the joint venture by pooling

expertise and resources. Commercial loneliness is not to be ignored.

The small practitioner gets real benefits by working with other

like-minded professionals. In fact, our joint-venture partner has

seen his turnover increase by more than 60 per cent over the last two

years of our agreement. He is now quite motivated.

Most important, he knows that, when he does retire, there will be a

continuance of service to his clients. Loyalty, after all, is a

two-way street and, while we all strive for client loyalty towards

us, the client expects us to be loyal in return.

The benefit to us of such a joint-venture agreement is that we get to

expand our client base without having to pay out a capital sum to

acquire our new business. Our joint-venture partner gets all the

renewal income for as long as it is payable – a form of retirement


A succession plan is essential for the small IFA. Without such a

plan, you will be left to the vagaries of market conditions which

are, at best, difficult to predict.

Nick Bamford is managing director of Informed Choice


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