The succession plan dilemma for financial advisors

Written by Marc Wiese, published in Blue Chip Digital on 14 April 2025.

With an aging advisor base and rising regulatory barriers, succession planning has never been more critical. Is your plan truly actionable? Will you get fair value? And will your clients be well cared for? This article explores key challenges and solutions for a seamless transition.

Succession planning for financial advisors is exceptionally important, particularly as the average age of a financial advisor in South Africa is estimated to be over 50. Due to increased regulatory requirements such as the FAIS Act, regulatory exams and heightened education requirements, it has become far more difficult for new advisors to enter the industry compared to 25 years ago. While these regulations have significantly professionalised the industry, they have also contributed to a declining number of new advisors. The complexity of the financial environment, coupled with the growing demands of product providers, has led to a situation where the majority of advisors at industry events are noticeably grey-haired.

All this necessitates the need for good succession planning for financial advisors. A good succession plan incorporates several key elements and needs to address the following questions: Is your succession plan practically actionable? Will you receive fair value for your practice which you have built over decades? Will your clients continue to receive the same or better service after you exit? Will your clients relate well to their new advisor? These are just some of the critical considerations.

At Warwick, we have engaged with hundreds of financial advisors over the past decade, gaining extensive experience and insight into the complexities of succession planning, so, let’s address the key issues more fully. 

Is your succession plan practically executable?

The FSCA requires all financial advisors to have a succession plan in place. However, in the event of death, disability, or retirement, is the plan truly actionable? Several factors must be considered:

1. Client Book Transfer Challenges: In the past, a client book could be transferred from one advisor to another by simply submitting a contract to the product provider. Today, most financial institutions require explicit client consent for such transfers, creating a significant administrative burden. Clients are often spread across the country, making the transition process cumbersome. This logistical hurdle results in many clients being ‘orphaned’ or seeking new advisors, leading to a loss of value for both the exiting and incoming advisors.

2. Capacity of the Successor Advisor: Many individual advisors select a trusted colleague as their successor. However, if both advisors are managing full client books of, say, 300 clients each, the successor must suddenly manage 600 clients post-transition. This is neither practical nor sustainable. Furthermore, if the successor is of a similar age, they may also be planning their own exit in the near future, causing further client disruptions.

Will you get value for your practice?

Financial advisory businesses derive value primarily from their client relationships. The risk for acquiring advisors is that clients may leave post-transition, making them hesitant to offer fair value for a practice. At Warwick, we have executed over 100 succession plans and have learned that structured, well-planned transitions result in high client retention rates – often exceeding 98%.

Industry-wide, advisory practices are typically sold at a Price Earnings (PE) multiple of 2.5. Comparatively, publicly traded financial institutions in South Africa have significantly higher PE ratios, for example: Sanlam Ltd: 6.93, Old Mutual Ltd: 6.18, Coronation Fund Managers Ltd: 5.71, Momentum Group Ltd: 8.12, Standard Bank Group Ltd (which own Liberty Holding Ltd): 8.17. Averaging close to a PE of 7.

The disparity is clear and given that most advisory businesses are valued based on revenue rather than profit, the traditional valuation model often misinterprets their true worth. For example, if an advisor currently earning R1.2 million annually sells their practice for R3 million (PE multiple of 2.5), capital gains tax at 18% reduces this to R2.46 million. If reinvested at 5% per annum drawdown, the advisor would earn only R10,000 per month post-sale, compared to R100,000 per month before, representing a drastic reduction in income. This financial gap is a primary reason many advisors delay retirement.

Will your clients be cared for after your exit?

Financial advisors build their practices based on personal relationships and service. A mismatch between the exiting and incoming advisor’s approach can result in client dissatisfaction and attrition. Many advisors have expressed concerns that their clients have become like family, and ensuring continuity of service is not only an ethical obligation, but a fiduciary responsibility.

To mitigate this risk, the successor advisor and their support team must be adequately trained to uphold the previous service standards. When partnering with larger firms, multiple advisors can be assigned to a transitioning client base, ensuring a smoother and more personalised transition.

What is the solution to the dilemma?

While there is no one-size-fits-all solution, financial advisors should consider the following key questions when planning their succession:

1. Does my succession plan allow for adequate time and capacity to engage each client personally?
2. Is my successor geographically positioned to meet and service my clients effectively?
3. Will my successor be a good personality and service match for my clients?
4. How long will my successor remain in the industry before they, too, exit?
5. What happens if my successor passes away or becomes disabled?
6. Am I receiving fair value for the business I have built over decades?
7. Does my successor hold the necessary FSP categories and provider agreements to facilitate a seamless transfer?

The Warwick way

At Warwick Wealth, we adopt a unique approach to succession planning. Having facilitated successful transitions for over 18 years and integrated more than 100 client books, we have honed a structured and effective model. Rather than treating these as acquisitions, we prefer to view them as mergers, ensuring continuity and minimal disruption for clients.

Our deal structures often allow for PE multiples of 10 or higher, far exceeding industry norms. Our transition process involves face-to-face client engagements over an extended period, ensuring comfort and trust. Clients are not merely numbers in a portfolio – they are individuals who deserve attentive service and care.

Furthermore, Warwick Wealth’s national presence ensures that clients always have access to a nearby Wealth Specialist, with built-in succession planning to guarantee long-term stability. 
The most important message is that every financial advisor has a duty to ensure their clients are well cared for post-retirement.