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Robert Reid: Succession should win over sale

Selling up is not the only answer for retiring advisers

I am hearing the topic of selling a business being discussed a lot. What I find funny is that many financial planners advise clients on retirement and more often than not will end up discussing what they plan to do with their spare time.

You would think this would reinforce the point that, in selling a business, there is a significant loss of both purpose and the enjoyable interaction with an eclectic cross- section of individuals. In short, there would be a high risk of being very bored in retirement.

Principals that think selling is the only option are quite mistaken. In failing to consider putting in place some kind of succession plan they have failed to recognise it is possible to reduce their hours significantly, while retaining ownership and the share of revenue.

“Principals that think selling is the only option are quite mistaken.”

Receiving relief

Of those who do decide to sell up, why are so many just putting the proceeds in an inferior investment? As financial advisers, it would not surprise me to hear they would have been critical of clients using pension freedoms to access cash from a tax-advantaged environment and putting the proceeds into a bank account with a negligible rate of growth. Why do the same? Quite apart from investing proceeds in inferior investments, selling the business also loses the advantage of business property relief.

Meanwhile, we find it surprising so many people seem to believe that the granting of entrepreneurs’ relief is an automatic right as opposed to something which is subject to review by the local inspector of taxes in each and every case. If the relief is not granted, this will impact on the net position on sale.

That is bad enough on its own but what if a deal goes wrong and subsequent instalments are unpaid as targets are missed or because the consolidator cannot afford to honour them?

I am not trying to scaremonger but we have heard of several deals where some of the consolidators have been unable to meet their obligations for secondary payments.

Where payments are deferred or have been paper, then the sales price achieved by the consolidated business may not reach the levels suggested when the deal was struck.

Toeing the tax line

Another point of concern is the reluctance of intermediaries to take professional advice in order to ensure the tax position is as they assumed. Some are even failing to take legal advice with regard to the contracts.

People have found themselves heavily restricted, with no one to blame but themselves.

Back to my earlier point on the other options available. It is safe to say any client base will be more comfortable with a succession than with a sale.

That said, this route does mean you have to be careful about who you recruit. We have just seen one of the youngest people ever awarded Chartered Financial Planner designation, which is certainly worthy of praise and commendation. But there is a clear issue in the market at the moment: many of the individuals attaining this level of examination success have little in the way of soft skills – unlike the advisers they seek to replace.

All of that said, a succession plan is a far superior option to a sale provided the right structure and the right approach has been taken. Advisers need to stop dismissing the idea too readily.

Robert Reid is director of The Ideas Lab



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  1. Rob

    You are so right, but as you alluded in your penultimate paragraph, finding the right individual with whom to pass the baton is by no means a given.

    I tried to find a suitable candidate ( I was a sole trader). Maybe my specification was too onerous, but I didn’t even get one response. Indeed this was not a one off. A prospective purchaser said they would have to recruit an extra adviser in order to have enough capacity to take on my book. He too didn’t get a satisfactory applicant and had to withdraw.

    In the end I sold. It was a reasonable and satisfactory deal. However I was always advising clients to do as you say and felt a little rueful that I couldn’t on this one occasion take my own advice.

    As I was wont to point out even if you sold for £1million that would only provide an income of £50k (and of course access to the capital). But continuing to have ‘skin in the game’ would probably provide proportionately more income – and cash flow is all!

    You are right again when you say there is potentially a significant loss of purpose and this point has been one of the major issues I have had to address. Thankfully successfully.

    As to your point about impecunious purchasers, this is in my view down to carelessness of vendors. It isn’t only the purchaser that needs to do comprehensive due diligence!

  2. Simon Trenear 15th May 2017 at 3:56 pm

    Rob You do have to be so careful though who you do recruit to take over from you. One of my longstanding friends in the industry brought in a younger adviser to take over his share of the business which was owned with 2 other colleagues. My friend retained his share in the business and a share of future income. The new adviser was also chartered as well. Unfortunately as later transpired he was not the most honest individual and some of the advice has since discovered to be far from appropriate . This new adviser has since cleared off into the sunset leaving my friend in his sixties to realise his liability as a share holder in the business which the FOS are only to keen to point this out. In this situation my friend would have been far better selling his business and making a clean break.

  3. People selling businesses without taking legal advice?????

    That’s a breath-taking lack of due diligence. It’s a very much caveat vendor world.

  4. i 15th May 2017 at 5:43 pm

    The problem is unsustainable businesses. Like Banks and Insurance companies – they need to segregate separated and exploit their “new ” client to pay for the Purchase. I sold my business to a ” Certified Financial Planner “, who then started switching churning products for 3% commissions. Moe importantly the lady ( and I use the term loosely) switched clients Bare Trusts creating tax consequences. Her protector was the IFP, (prior to sale) who refused to investigate
    The bottom line is companies including banks sold off Banks to each other many years ago – we have seen what is referred to as CONsolidation in the insurance company market, along with many national firms – reducing the competition and feathering the nests of the few – Yet Paid For by the Clients. The FCA as Govt agent have done little to protect these clients – but it is nice to see they spend your hard earned cash ( Adviser fees – the Business Tax ) on Logos and Redecorating. Is it woman as the Chief Exec ? or the bosses wife ? Should they move the furnoture to create a further diversion – in these times of Austerity we are told ?

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