Retiring financial advisers miss out on the benefits of succession – working less, earning more and boosting business value – due to poor planning, the 2008 Axa Succession Report found.
Just 15 per cent of planners sell their entire business, while 85 per cent flog their client base.
This may be because only 12 per cent of practice principals have a fully-funded, agreed and documented business plan, Axa acquisitions and succession team head Steven Davison said.
“Advisers are not doing enough planning for their retirement. They need to ask themselves when they want to retire and decide how much capital they need,” Davison said.
The study found many planners were too busy helping clients build and protect wealth to focus on achieving their own retirement goals.
Businesses that attract a premium price are sustainable and enable the buyer to enhance their business objectives.
Compatibility of the parties involved is often more important than the price, the report found.
Practice principals who have a sound succession plan in place have considered all available options and know who the buyer is going to be well in advance, it concluded.
There is strong demand for financial planning business acquisition, but short supply has driven up pricing.
The average price is 3.5 times recurring business revenue, compared to 2.9 two years ago.
Many practice principals underestimate the time it takes to plan succession, which is between three and five years.
“An important benefit of generational succession is that those who pay for ownership have a vested interested in ensuring they get fair value for money and work harder to ensure that this happens,” Silvan Ridge Financial Services founder Mike Raselli said.
Axa has been involved in 200 succession transactions in six years.
