Financial Planning

Strategic intent key to succession planning

30 January 2019

Jayson Forrest

Jayson Forrest is the managing editor of Money & Life Magazine.

Transparency of process and open communication were two of the key factors for Capital Partners’ succession planning process.

With a firm focus on its future, Capital Partners Private Wealth Advisers has done something a little unusual when it comes to business continuity. From 1 August 2018, the Perth-based practice brought on board eight new principals as part of its succession and transition strategy, which has seen the business move from founder ownership to second and now third generation ownership.

“There has been a lot of emotion around this program, which has taken about 2.5 years to implement. We’ve taken a long view with regard to succession planning, which takes an enormous effort to do well,” said David Andrew AFP® – the founder and managing director of Capital Partners Private Wealth Advisers.

“But we’re confident we’ve got the right mix of equity partners in place to guarantee the long-term future and ongoing success of our business.”

Speaking on the topic of succession planning at the 2018 FPA Professionals Congress, Andrew said the key to rolling out a successful succession planning strategy was having a clear strategic intent on how this was to be achieved from the outset.

“This requires clear vision,” Andrew said. “For us, this meant we didn’t want to be institutionally owned. We needed good people to help grow the business, and we wanted the overall succession planning process to be respectful and fair for all parties involved.”

One of the key outtakes Andrew took away from the succession planning process was the need for effective and open ‘communication’.

“We completely underestimated the amount of communication needed during the time it took to implement our succession plan,” he said. “We established our ‘Pathway to Principal’ document, which outlined our principles and values as a business, and the criteria and responsibilities required as part of ownership of the business. This document helped potential new stakeholders to better understand what was expected of them, and was a great starting point for them as part of the succession planning process.”

Andrew added that business owners should never assume that potential buyers of a business have the same knowledge or expectations as the current owners.

“We were fortunate to bring on board stakeholders who already worked in the business, which from a succession planning viewpoint, made the overall process a little easier. However, ‘complexity’ and ‘ambiguity’  were two common words that our new stakeholders used to describe what it meant to be a business owner,” Andrew said.

“There was a big knowledge gap between the existing owners and new stakeholders, so we had to ensure that the whole succession planning process was as collaborative as it could be. This meant being absolutely transparent and respectful throughout the whole process, which included opening up the books to staff members who we wanted to bring on board as principals.”

In addition, Capital Partners has developed a ‘Shareholder Agreement’ – a rule book outlining shareholder responsibilities, which took the business two years to complete.

“This is a very clear document that provides clarity for all shareholders of the business,” he said.

The document covers topics such as:

– Valuation mechanism;

– Shareholder rights;

– The responsibilities of individuals; and

– How to get in or out as a shareholder and on what terms.

“With only an estimated 12 per cent of financial planning practices having a succession plan in place, we believe our ‘Pathway to Principal’ and ‘Shareholder Agreement’ documents were important elements in ensuring our succession planning process went relatively smoothly.

“And while I believe we did a number of things quite well throughout our succession planning, like overall transparency of the process and open communication, looking back, there were some areas we could have improved on. Owners need to realise that during the succession planning process they need to be open-minded about questions, and that’s something we could have been better at addressing,” Andrew said.

“And remember, never make decisions in an emotive state. Succession planning is a very emotional experience, so don’t add to your stress by underestimating the time required to complete this important task.”