For the majority of advisers, the time for succession planning is now, says AMP General Manager Advice and Sales, Therese Singleton, but she warns it is concerning that so few have a plan in place.
“The average age of advisers is such now that the majority of them should be thinking about it now,” says Singleton, referring to the ageing demographic of the adviser community when she spoke to RiskinfoNZ.
The average age of AFA’s in 2014 was 50 years old, according to an FMA industry snapshot report.
The Ministry of Business, Innovation and Employment’s Baseline Review of Financial Advisers in New Zealand, found that the majority of advisers were within the 40 to 59 years age range (67%) in 2011.
AMP Head of Wealth Management Growth, Aaron Klee presented a guide to succession and continuity planning to advisers around New Zealand in March 2017.
During the seminars, attendees were asked to raise their hand if they had a succession plan and no more than 40 out of 400 advisers indicated they had one.
One-third of advisers have a succession plan, and of these, only 50% have it documented, according to commentary from George Hartman (author and director of Market Logics in Canada) and Michael Kitces (blogger and director of Pinnacle Advisor Solutions in the US).
“It’s around working back from when is it you think you don’t want to be in your business anymore and therefore what’s the period of time you should be setting apart to set yourself up for that date of exit?” Singleton said, explaining AMP has been working for the last 12 months on bringing succession planning to the fore and increasing awareness in the market.
…the traditional model of the young adviser coming in and taking over from the old adviser is very challenged…
Singleton noted that in her experience talking with advisers over the past year, not many advisers have a succession plan front-of-mind.
“In my experience, one in 10 businesses – and that would be in the larger size of more than five to six advisers – have some form of a conversation with their colleagues around succession planning,” she said.
“The vast majority of advisers…when they think succession they think finding somebody to buy their book at the best price they can get for the book.”
A succession plan is not an exit plan and Singleton says many advisers are probably not aware of the difference.
a) An exit plan – selling the practice all in one go.
b) A succession plan – a gradual transition of ownership and leadership to the next generation.
Apart from lack of awareness, the lack of new entrants to the industry to take over advice practices puts an added weight on succession planning.
Klee mentioned in his presentation that the most challenging part of succession planning is finding the right successor because there are so few to choose from.
“It’s all encompassing because it starts with not alone the demographics of the adviser force but also that so few new advisers are joining the industry,” added Singleton.
“So the traditional model of the young adviser coming in and taking over from the old adviser is very challenged.”