The Financial Services have seen a significant change in what exit strategy is adopted to an IFA when leaving financial services or retiring. This is great news for the FSA, as well as the clients, as it means that clients don’t get left out in the cold when their adviser is no longer working for them. In the past it was quite common for an advisers clients just to go back into the client pot within the practice (often referred to as orphans) where they could get forgotten about.
Where now, advisers are aware that they can be worth a small, and in many instances, a large fortune to them in the future, provided the clients are clients, and not just a name on the database! It’s nice to see that more and more practices now look at long term relationships with clients to ensure clients remain clients and the steady income stream from renewals and automatic increases etc continue.
In many respects IFA practices had to change the standard format offered to exiting advisers to ensure that on recruitment, quality advisers would join their practice, over and above the one next door.
Nowadays, when a quality advisers is looking to join a new practice it’s almost a given as to what they expect when joining, never mind on leaving! After all, quality advisers are very hard to come by, and it is acceptable to pay recruitment fees of £000’s to recruit the right advisers, so why not offer them a Practice Buy Out on leaving? This will help continuity and provide them with something to work towards, as often they have built their own client bank within the practice, and as we all know, people tend to do business with people, rather than the company, so it is best to keep hold of them until they retire! In advisers doing this within a practice, not only will the advisers individual practice become stronger, so will the principal practice, which is a win-win.
Many IFA practice’s offer a Practice Buy Out (PBO) for advisers either looking to retire or leave financial services altogether. There have been a number of significant changes over the last few years, where advisers are now looking to build their own practice, within a larger IFA practice, with a view to building a passive income from retainers, renewals and fund based commissions.
The industry has seen more advisers grow their business with more aspirations to qualifications, with firms and practice principals creating businesses with long term capital value.
The increasing market shift away from transaction based remuneration, fuelled by consumerism, regulation and product manufacturer financials has had a large impact on the perception of the quality of business written, and the need for practices to reduce dependence on volatile transaction based revenue, which all have a bearing.
This PBO clearly provides the means by which you can build future value within your practice. The value will be a factor of several different elements each providing an incentive to embrace excellent working practices.
You will be able to apply these different elements directly to the activity within your practice, and you will also have a number of important decisions to make as a result of these PBO guidelines.
You should ask yourself a number of questions such as does your current business model create capital value for you personally on exit? If not, what business decisions do you need to implement or improve on this situation? Do you need to create greater clarity about client ownership in your practice? Do you need to develop a PBO for those in your practice which works in tandem with this one to create real synergy? What changes do you need to make to your processes in order to maximise the multiples which contribute to the ultimate value? Do you need support to review your business and long term objectives?
You should get familiar with the PBO concept well in advance of any discussions you need to have with those who work with you, as the more you prepare, the more money your practice will attract.
As ever with anything new and groundbreaking, there is much to take on board. Set aside time to decide how your practice value can increase in value, then implement the systems. Think about the things that would be beneficial to you if you were to buy your practice, then do it. If you would buy it, then the odds are another practice or company would do so too!