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Developing and implementing a business succession plan is a key part of business planning, yet only one in 10 practices have an effective plan in place. Jayson Forrest talks to two successful practices about their different approach to business succession.
Name: John Hewison CFP®, Andrew Hewison CFP®
Position: John Hewison – Chairman and Founder / Andrew Hewison – Managing Director
Practice: Hewison Private Wealth
Licensee: Hewison & Associates
FPA Professional Practice: August 2011
Total staff: 37
Name: Tim Mackay CFP®, Claire Mackay CFP®
Position: TM – Principal / CM – Principal
Practice: Quantum Financial
Licensee: Quantum Financial Services Australia
Total staff: 11
There’s no denying that the advisory world has been dramatically disrupted over the past 12 months, with many advice businesses working their way through a global pandemic, the ramifications of the Hayne Royal Commission, and adjusting to the FASEA professional and education standards.
However, amidst all this change, what is particularly concerning are the number of financial planners who are still unprepared with their succession planning and exit strategies. Research from this year’s Business Health’s Future Ready VIII report revealed a staggering 72 per cent of planners have no written succession/buy-sell plan in place, with only one in 10 practices having an effective succession plan.
But that’s not a problem for Melbourne-based Hewison Private Wealth and Quantum Financial in Sydney, with both independent advisory practices developing their own unique approach to business succession.
In fact, John Hewison CFP® takes succession planning so seriously that the founder and chair of Hewsion Private Wealth established a Graduate Mentoring Program in 1995 to groom the next generation of stakeholders for the business.
“Business succession planning is absolutely essential,” says John. “Succession is often referred to as an exit strategy, but for us, it’s part of our business plan, which we’ve had right from the get-go in 1985.”
Today, the Graduate Mentoring Program is an important part of Hewison’s succession planning strategy, by identifying and training talented people, with a view towards equity ownership of the business. The five-year program has been specifically designed to give practical experience and mentorship to university graduates joining Hewison, including enabling them to complete their post-graduate studies and the CFP® Certification Program.
“Until our staff complete this program, we do not deem them as being financial planners and they are not permitted to advise clients, although they do work closely with our senior planners as part of the overall training process,” John says.
“We implemented this program in the belief that if you get good people and train them up, but don’t give them the opportunity to share in the ownership of the company, then you’ll lose them. So, our aim was to attract good people to the business, train them and retain them for the long-term.”
John’s son, Andrew Hewison CFP®, is a product of the Graduate Mentoring Program, having done the hard yards himself by working his way through the business to eventually become an equity owner, as well as the managing director of Hewison Private Wealth.
“Our succession plan creates a great deal of clarity for key staff members,” he says. “By providing a clear pathway to equity ownership, staff know there is value staying with the business over the long-term. Without this clarity about what succession looks like, then staff would most likely be more interested in the short-term.”
Since rolling out the Graduate Mentoring Program 25 years ago, 16 individuals have successfully completed the program, with 10 becoming senior client advisers, four of whom are now equity holders within the business.
“This program has resulted in developing people who embrace the philosophy and mission of our business, which has had a massive impact on the culture at Hewison Private Wealth,” says John. “That’s because everybody has buy-in with the business and ownership of our collective mission.”
While this approach to business planning has been a huge part of Hewison’s success over the years, Andrew is also quick to add that the business has never lost a planner to its succession planning process.
“We don’t expect all our team to become equity partners in the business, but they are all provided with the same opportunity,” Andrew says. “And while it sounds cliched, culture is everything. John’s business succession plan has always been about empowerment and inclusion in the business.
“We’ve always been very clear that our business succession plan does not involve selling the whole business to another organisation. People are more motivated to become a part of the growth and the fabric of this business because they know it’s not going anywhere.”
Everything and nothing
Quantum Financial partner, Tim Mackay CFP®, views business succession planning as both “everything and nothing”. He says succession planning is everything in the sense that without a plan, you can’t get from A to B.
“A plan provides you with guide posts, accountability and how to measure success. But it’s also nothing, in the sense that things invariably happen differently to how you planned them. So, the value is in the planning process and not in the predetermined plan itself, because the plan will never be able to cover all the eventualities that crop up.”
As a partner of Quantum Financial, Claire Mackay CFP® shares her brother’s sentiment, adding that as circumstances or information changes, business owners need to be flexible with their planning.
“Business succession planning is a thought process,” says Claire. “It’s about putting time aside to think about how you want your business to look like and then navigating your way towards that, just like we do for our clients.”
But unlike Andrew, who served his apprenticeship early in the profession by working his way through the Hewison business, the founder of Quantum Financial, Bill Mackay CFP®, took a different approach to succession planning. Instead, he sent his children out into the wider world to first gain practical experience, before joining the family business.
“For dad, that experience was all about the good and the bad,” Tim says. “It was quite a smart approach, as it meant he didn’t have to pay for our mistakes. But it also meant we were professionally trained and had gained valuable experience before joining the practice.”
Tim spent time working overseas, which exposed him to foreign markets, networks and contacts. His time spent in investment banking provided Tim with exposure to industry sectors, investing styles and best-of-breed product providers.
And Claire’s time spent woking at PwC and Macquarie Bank, also set her up with a valuable skillset that complemented Tim’s.
“Working outside Quantum provided us with the discipline we needed to enable us to work more effectively as planners,” Claire says. “We have clients who are business owners and who work in large organisations. So, having that experience reassures them. Conversations become much deeper when clients know you’ve got a lived experience they can relate to, which enables us to better relate to them.”
With Bill Mackay sadly passing away two years ago, Tim and Claire have firmly taken over the reins at Quantum Financial, with Tim confident they have successfully navigated phase one of the succession plan – the handover.
And what about the long-term? Does Tim expect to hand the business over to the third generation of Mackays as part of phase two?
“It’s unlikely,” Tim concedes. “Like our father, we accept the fact that it is improbable the business will be passed onto our family. When dad sent us out into the wider world, he didn’t expect both of us to come back into the business.”
And while Tim is hopeful that he and Claire may be able to eventually hand over the business to their children, he remains pragmatic.
“There was never any pressure put on us to join this business. So, I wouldn’t ask my kids to take over, as that would put pressure on them. And while the opportunity exists for our children to eventually join the business, it will always be their decision to make.”
Instead, he accepts that Quantum Financial will most likely be sold to an external buyer or internal staff who they feel comfortable with.
“That’s our succession plan, which is a more standard approach that most planners would go through, rather than being able to rely on the next generation to carry the torch.”
Addressing the sacred cows
When formulating a business succession plan, a key element that is often underestimated is the time it takes to develop and implement an effective plan.
“Too many business owners wait until they get within five years of retirement before deciding to have a succession plan. That’s simply too late,” says John. “You need to prepare much earlier.”
John adds it’s not enough to simply employ staff with a view to succession, because finding the right calibre of people who will embrace the culture of the business, understand how the business operates, and be competent to eventually step in and run the practice, takes time.
“Succession is a long-term process. It requires a five to 10-year outlook in order to get the right people, train them and provide them with the relevant experience.”
Andrew agrees: “By looking at your growth rate in clients and FUM, you need to anticipate in advance when you’ll need to put on an extra planner. This could be in three or five years’ time based on your expected growth. For us, that means placing an individual in our Graduate Mentoring Program, which means we need to start looking at that new hire now, so they’ll be ready in five years, because study and mentoring takes time.”
Another issue John has encountered over the years is the reluctance of business owners to give up value within their business to staff, as part of their succession plan.
“Owners need to be willing to sell part of their business at a ‘friendly’, not market, price. You need to look at this as a growth strategy, which does pay off in the long-term because you achieve growth that you wouldn’t have been able to do by yourself.”
Andrew also adds transparency and flexibility as two other important considerations of business succession planning.
“Transparency for stakeholders is critical for any long-term succession plan. You need to get these people on board early with the plan, so they can get excited about their future with the business.”
For Tim, the key to a good succession plan is people, which includes understanding their goals, aspirations, strengths and weaknesses.
“And while there are also all of the additional mechanics of a plan to consider, like the financials and target timings, it really does come down to people, and how they work together and fit culturally within a business.”
It’s a view shared by Claire, who adds that an important part of any succession plan is a “meeting of the minds” – understanding where you agree and where there are differences, and navigating your way through that.
“There’s nothing worse than arriving at a situation where there are very different views on how to address something, and not having a way of working your way through that problem. In a sense, succession planning is a state of conflict. It’s about one leadership group handing over control to another, where people will have different ideas about the future which might conflict with the way things were done in the past. And this can create unintentional conflict,” she says.
“So, an important part of the succession planning process is honesty. Stakeholders need to know where the sacred cows are and where are the opportunities for innovation and new thinking that is essential for any successful business.”
A learning process
Having successfully run the Graduate Mentoring Program as a core part of its business succession plan for 25 years, John says there have been a number of key learnings for Hewison Private Wealth over the years. He concedes that any business succession plan doesn’t come without its challenges.
“Business succession is not easy,” John says. “As an owner, you have to be willing to give up the decision-making process, and sometimes that has its challenges, but it’s necessary. It can be hard for an owner to step back and let other people take over, so that’s where trust kicks in.”
Andrew agrees: “Business succession is challenging. If you’re not a founder of a business, then you won’t fully appreciate the enormous effort required to get a business up and running, and the amount of emotion an owner may have personally invested in the business, which can make it hard for them to let go.”
Claire shares his view: “There’s a great deal at stake when you’re handing over your business. But our father was incredibly generous in giving us the freedom to make change. His counsel was invaluable to us, both as financial planners and business owners.”
Claire adds that while the business her father ran and the business the siblings now have are very different, at their core is a shared ethos. “And that’s important when maintaining continuity, to ensure the values of the business are respected and maintained.”
And while Tim agrees that business succession planning can be challenging, he is also a strong advocate of seeking out other professionals, particularly from outside the industry, to gain their perspective on how they do succession planning.
“Before dad passed away, we got involved in the Australian Institute of Company Directors. That allowed us to share ideas and talk to people outside our own industry who were also working their way through similar transition issues,” he says.
“These people or businesses don’t have to be in financial planning. That’s because it’s not the financial planning issues you need to worry about but rather, the business succession issues, which is common across all industries and professions.”
Doing things differently
Ask John if he would do anything differently with the business succession plan at Hewison, and he reckons the business has got it “absolutely right”.
While he admits the plan was a learning process over the years, he is happy with how the plan has evolved. “Our plan must be working because we haven’t had any failure with our planners. So, I don’t have any regrets with our business succession plan and I can’t see how we could have done it any better.”
While Tim and Claire are very comfortable with Quantum’s succession plan, the two things Tim admits they could have done better was to start the process earlier and to engage with an external third-party professional to help them with the transition.
“I definitely would have brought in an external third-party professional much earlier into the process than we did,” says Tim. “And this third-party doesn’t have to be a succession planning expert, they can be a business coach. You just need a third-party who can objectively mediate some of the more contentious issues, remove the emotion from the process, and keep you accountable to your plan,” he says.
Start the process now
With only one in 10 financial planning practices having an effective business succession plan in place, what advice do these business owners have for other practices yet to develop a plan?
“That’s simple. Do it now,” says John. “The sooner you can implement it, the better. Unfortunately, a lot of business owners think their business relies solely on them and nobody else can do it better. That’s the wrong attitude to have. Our approach is to hire people who are smarter than us. I think it’s important to have that sort of mindset.”
It’s a view shared by Tim: “Start now and just get something down on paper. Accept that it won’t be perfect initially but by revisiting your plan regularly, you will be able to fine-tune it.”
John also encourages businesses to invest in their business succession.
“It’s expensive to put people through post-graduate studies and train them onsite. And while you get pay-back relatively quickly, it’s still a business expense you need to accept as a growth investment in your business.”
In contrast, Andrew advises practitioners to listen to their own advice, just as they would expect a client to do.
“As a business, understand what your goals and objectives are,” he says. “John’s goals were very clear. He wanted to see the culture and philosophy of his business carried on. But I know other planners whose goals are different. Their goals are to build up their business with the aim of selling it and leaving. And that’s fine for them because that’s their objective.
“So, you need to understand what you want, and then set your goals and objectives. The earlier you put a plan in place, the more successful it’s going to be.”
However, Claire questions why a business wouldn’t have a succession plan in place and what is stopping a practice from having one.
“You need to address the barriers that are preventing you from having a succession planning, like fear of losing control of your business. These concerns and fears can be incorporated in a plan,” she says. “But you need to work through these barriers.
“However, if the barrier is not having the time to sit down and work out your business succession, then engage an experienced professional who can help you with the process. It’s something you won’t regret.”
Hewison Private Wealth is an FPA Professional Practice. An FPA Professional Practice is dedicated to the highest professional and ethical standards, through commitment to the FPA Code of Professional Practice and CFP® Certification.
5 tips for business succession
1. Start early
Don’t begin your business succession planning late. Business succession is a long-term process. Make a plan, revisit the plan and fine-tune it.
2. Goals and objectives
Work out your goals and objectives for the business. And consider the needs of the different generation of partners/owners in the practice. Their needs, goals and objectives are likely to be different.
Be transparent and clear in your communication with key stakeholders about their pathway to an equity stake within the business. By getting them engaged early with the plan, staff can get excited about their long-term future with the business.
4. Document the succession plan
Clearly document the succession plan, be clear on the financing, equity ownership, target timings, and the steps to complete the process. And importantly, revisit the plan to make sure it is still relevant.
5. Talk to other professionals
Talk to other business owners who have either been through the succession planning process or are currently going through it. Learn from their mistakes and experiences.