Don’t wait ‘til it’s too late, it’s time for some serious planning

We’re close to releasing our Future Ready IX whitepaper, the latest in our series of industry reports in which we seek to provide a comprehensive insight into the ‘health’ of Australian advice firms and how prepared (or not) they are for the challenges ahead.

Our research continues to show that the majority of advice firms are small businesses employing around 6 people, including 2.5 advisers. 70% of practices are owned by a single principal and it’s this person who has, in all probability, established the business, managed it throughout in a very hands-on fashion, has experienced its highs and lows and, up until recently, has anticipated a convenient sale (a major contribution to his or her retirement funds).

The challenges to retirement and/or business transition are further exacerbated by our finding that 52% of principals have no key person protection plan in place, 65% have not documented all systems and processes and 34% openly admit they are consciously running their business with inadequate business continuity insurance.

And while it is perhaps not surprising that 89% of principals stated that their business could not continue to grow and develop without them (in fact 52% reported their practice could not operate at all if they were not there), this is clearly an untenable business risk to both the clients and the practice itself. Especially so, given that 64% of the clients who have completed the Business Health client survey stated that they “would not be comfortable dealing with anyone else from the practice other than their current adviser”.

As we have noted on previous occasions, today’s world of advice is likely to be very different to the one that existed when the owner originally began the business. In fact, it’s a very different world to even five years ago. Risk management and transitioning are major threats to ongoing business continuity and viability.

Without some serious planning, disappointment is almost assured and yet, only 22% of firms have clearly articulated their planning for the next 3-5 years, while just 5% of firms have what we would view as a comprehensive succession/transition plan in place. This situation represents, almost unbelievably, a deterioration from our 2020 Report.

Given the magnitude of the issues that practice principals continue to grapple with, it remains a mystery (to us at least) that so few seek external input and advice to help with the strategic positioning and operational management of their business. Unfortunately, our Future Ready IX analysis also shows a downward trend in the number of principals who regularly seeking guidance from someone outside of their business.

Time for the owner to step up and own their situation perhaps …before it’s too late?