John Novachis, of Investment Planning Counsel, reminds advisor owners to look beyond the markets in evaluating their business
The current noise in the industry and markets might make it tough for advisor owners to look beyond their day-to-day, but that doesn’t mean they should leave their long-term succession plans by the wayside, according to one industry leader.
“The pandemic brought the importance of being succession-ready to the forefront of many advisors’ minds,” says John Novachis, executive vice president for Corporate Growth and Development at Investment Planning Counsel. “Over the past year, we saw some advisors choose to retire earlier, others opt to streamline their business by selling a portion of it and continuing to focus on high-value clients. Still others chose to step back and relinquish the administrative burden and the cost of running their own busines.”
For many independent advisors, the current environment may feel like an extreme pressure cooker with stresses coming from multiple sides. On top of inflation and rising borrowing costs, practice owners must also grapple with the increasing price of quality talent, and how to engage them through new hybrid or remote work modes.
As challenging as the virtual world of work might be to navigate for some advisor business owners, it does have its benefits. “There are great opportunities for advisor practices to potentially consolidate to create more scale, cost synergies, and growth opportunities,” Novachis says. “Our experience with COVID made us very, very comfortable with leveraging technology to the extent that geography is no longer a barrier, which opens up some very interesting strategic possibilities.”
The case for consolidation goes beyond the markets. After decisionmakers from the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) voted to approve the formation of a single SRO, some advisors with many decades behind them may want to consider accelerating their exit plans as they weigh the prospects of going through another bout of seismic regulatory change.
Read more: New SRO is a win for everyone, say dealers
Certain advisors looking to exit might hesitate to pull the trigger given how markets might have impacted their clients’ assets and, therefore, the book value of their business. But Novachis stresses that there are other quantitative and qualitative factors that impact the valuation of an advisor’s business.
“You have to think about the type of revenues generated by the business, the profile of the client base, the investment holdings, the repeatability of the client experience process, and the extent to which quality financial planning is done with compliant use of technology, just to name a few,” he says. “Ask yourself: considering all the factors that affect valuation, would you buy your own business?
To ensure that they can extract the best value from the business, Novachis says advisors should make sure their businesses are running with systems and processes that are not only well documented, but also repeatable. Beyond that, clients’ investment strategies and financial plans should be well organized to make the business transferable and easier for a successor to take over.
“Certainly, markets will eventually return. But we don’t know when that is,” he continues. “You need to do some good sound planning on your business and your own personal strategy, because we don't know what we don't know.”
