In September 2021, Reg Thomson, Anthony Delport and I finalised a transition plan to merge our respective businesses. Delport & Thomson Wealth Management was a well-established business, while I was looking to expand my solo advisory practice. At the time, Reg was 68 and scaling down his work commitments, Anthony was 58 and eager to keep building and I was 48 and fully focused on growing my business. Having shared an office for years, we knew each other well and decided to merge our businesses, facilitating Reg’s phased retirement over the next five years.
The agreement was straightforward, built on a foundation of trust and shared philosophies. In September 2021, we signed the merger agreements, filled with excitement about our future. However, we had not yet ironed out the details of how Reg’s retirement transition would unfold, as our immediate focus was on the merger itself. Around 4pm that very day, Reg called with devastating news: Anthony had passed away unexpectedly at 1pm.
While mourning the loss of an extraordinary person and future partner, Reg and I faced a difficult decision. Our merger agreement was not yet effective, and we each had the option to walk away. Reg could have sold to a corporate entity, and I could have continued as a solo advisor. After many tough conversations, we chose to proceed with the merger. Three years later, it is clear we made the right decision – for all concerned.
Following Anthony’s passing, Reg and I navigated the intricacies of succession planning. This was especially challenging as I assumed the role of the successor while Reg transitioned towards retirement. Succession planning is a complex process with countless considerations. While entire books have been written on the subject, I’ll highlight two critical areas we had to address: firstly, Defining the Founder’s Future Role and secondly, The Great Income Debate.
Defining the founder’s future role
The founder’s short-, medium- and long-term roles in the business must be clearly outlined. Will the founder remain involved in daily operations or take on a different role until full retirement? Crafting this roadmap requires ongoing discussions, not a single conversation. It’s an evolutionary process that often stirs strong emotions.
A helpful tip is to conduct these discussions outside the office, in a more relaxed setting. With patience and the right partnership, these conversations can pave the way for a successful transition. Once the roadmap for the founder’s future role is established, the next crucial step is tackling the income debate.
The great Income debate
One of the most important distinctions in succession planning is understanding the difference between ownership and management.
Ownership represents a stake in the business – it can be bought or sold, but not taken away. Management, on the other hand, is a role within the business – it cannot be bought or sold and must be compensated appropriately for the value it brings. Ownership should not interfere with this principle.
If the founder is stepping back from day-to-day operations, their salary should reflect this shift. In our case, Reg and I gradually adjusted our compensation to align with our operational contributions. This process is easier said than done.
A key factor that facilitated this transition was Reg’s financial planning over the years, which allowed him to view the income debate from a long-term perspective. Rather than focusing on maintaining the same salary, Reg prioritised the future success of the business, where he remained a shareholder.
By reducing his monthly salary, we freed up cash flow to invest in the company’s growth. This included hiring another wealth manager who also purchased shares from Reg. Without reallocating monthly income, the firm’s future growth would have been at risk.
For financial planners who advocate long-term planning to their clients, embracing succession planning for their own practices is not just prudent – it’s essential.
The best-case scenario for an exiting founder is to sustain their income level while scaling down their workload. The key difference is that income now comes primarily from business profits rather than a monthly salary.
Conclusion
Succession planning is both an art and a science, requiring emotional intelligence, strategic foresight and meticulous execution. Addressing challenges proactively and following best practices enables financial planning firms to achieve seamless transitions that benefit clients, employees and the business itself.
A well-executed succession plan reflects the advisor’s commitment – to their business and to the clients and colleagues who have contributed to its success. It secures the continuation of a trusted legacy, ensuring the practice thrives for years to come.
For financial planners who advocate long-term planning to their clients, embracing succession planning for their own practices is not just prudent – it’s essential.
