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Succession Planning: Is employing young planners a good option?

In the second of our series on Succession Planning we explore the idea of employing young financial planners with an eye to them eventually taking over the business.

Wednesday, December 5th 2001, 10:09PM

You're 55, you've been running your financial planning practice for 10 years and you're looking to get out over the next five to 10 years. Is bringing in a younger person to take over the practice a good succession option?
Views are mixed on the merits of bringing younger advisers into an industry that has traditionally been staffed by older practitioners. How can a 25-year-old relate to an older client base, sceptics ask. Will older clients accept them? And, importantly, will they have the capital to buy the business when the time comes?

Money Managers' Alan Anderson, for one, argues that clients in their sixties won't want to talk to a 25-year-old about their investments.

David Greenslade of Armstrong Jones' Portfolio Group agrees, if you're talking about the traditional "lump-sum oldies" planning market. But for "empty nesters" approaching retirement, or clients starting to accumulate wealth in their mid-thirties, an adviser's age isn't quite so important - so long as young advisers can develop their credibility.

"We see young people coming in now with degrees and multiple degrees and that helps. If they don't have that they won't get far," he says.

Three years ago, Stephen Parr, 53, of Broadbase Tauranga was so bogged down in paperwork he felt he couldn't carry on with his planning practice. He was also about to move into a wrap account system which would create more administration. He decided he needed to bring someone else into the business.

He considered approaching someone his own age but felt that would only compound the problem of how to get out of the business when he wanted to retire. Instead, he opted for a management studies graduate in his mid-twenties whose final-year project he'd sponsored.

"It seemed a logical thing to bring in a younger person who could be mentored and established into a long-term succession planning system," he says.

Three years on Philip Holland is enjoying being in the business, Parr is happy with his progress and both say clients regard them as a team and are now just as likely to ring Holland as Parr. They're now looking to take another young adviser on board.

Parr argues bringing in someone of a different age and type can invigorate a mature practice and give it the chance to expand into specialist areas such as insurance and mortgages.

"Since Philip arrived the average age of our client base has moved down. We now have two main groups of clients - retired people and savers," he says.

When it comes time to sell, he believes clients will be much more likely to stay with the firm if they know and are used to dealing with the new owner.

Holland joined Parr's practice on a two-year trial to give them both time to ensure they were comfortable working together for the long term.

Holland was introduced to clients as the practice's client and technical services manager and put in charge of introducing the wrap account system and streamlining backroom operations. Parr also involved him on every financial plan.

His salary level is now tied to a series of agreed goals and the business's profitability.

"My job is to mentor him into the financial planning profession and his job is to improve the efficiency and profitability of the company. All going well, as I ease out he takes over," Parr says.

Parr admits it took a major effort to bring someone in on a salary that felt as though it was coming straight out of his back pocket.

"But by the end of the first year we'd made that up and we've been on a good profit since as a direct result of Philip coming in."

Holland, who majored in finance for his management studies degree, says the biggest advantage of working with Parr is being able to do everything.

"The future is very exciting, knowing that we've both got the same idea and are working towards it."

He advises other financial planning practices to look at the long term and give younger people a go. And he warns other young people looking to get into financial planning to expect not to be paid too well at the start but "to engage in some long-term thinking".

Geoff Nairn of Broadbase Egmont has also recruited someone in his mid-twenties. Once he has passed certain milestones he will be able to buy into the business.

Though Nairn is happy with progress so far, he sees considerable threats for provincial practices that sink money in training and supporting young advisers only to see them head off to bigger and better things elsewhere.

"It's something we agonised over for a long period of time. We put him through quite extensive psychological appraisals to get an understanding of what his drivers were, whether larger centres will draw him away. In the end we didn't come to a definitive conclusion on that - only time will tell."

Cyril Chaplin, whose life broking company is the principal shareholder in Succession Planning Specialists, says New Zealand's new taxation and company laws have made it much more attractive for older shareholders to sell to their younger counterparts.

"Now a company can buy its own shares you can have a company funding the actual retirement or purchase fund for the retiring shareholder. It opens up a huge avenue for planning and in a number of cases on quite favourable tax terms."

He believes every business should have a culture of getting young people in.

"You've got to make these sorts of people wealthy enough to buy you out. And you have to give them greater opportunities than they would normally get being an employee for all their life. It's a culture we have to consciously create."


Got a question about succession planning?

Send in your questions on succession planning to editor@goodreturns.co.nz and we will find some answers for you. Please include your name and address so we can contact you if need be.

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