Subject code and name Course code and name Name of ...

Subject code and name Course code and name Name of ...

AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession This presentation examines the issue of Business Contingency and Business Succession in relation to Practice systems and Providing monitoring and services We first examine the critical aspects of Business Contingency Planning and Disaster Avoidance/Disaster Recovery Then, we analyse the issues related to Business Succession Planning Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management

Business Contingency and Business Succession Like the proverbial plumber with leaking taps, many advisers avoid considerations about death, disaster, retirement. Some Issues that could cripple a business: Loss of information and catastrophic computer failure Death/TPD of principal Death/TPD of business partner(s) Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession

Loss of key staff Loss of key clients Loss of reputation Failure to adapt to change Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession Lets look at each of these in some detail... Loss of information and catastrophic computer failure with plentiful off site backup widely available at a very cheap price there is really no excuse for a business to suffer a disaster as a result of this issue

ALL businesses should have offsite backup and files should be automatically backed up twice a day or more often for larger practices Backups should always be located off site in a secure location Seek professional advice on the most appropriate solution for a particular practice Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession Death/TPD of principal As the saying goes: Death is the only certainty in life.. However, most principals don't consider this to be an issue in their working lives and therefore dont take steps to manage this from a business point of view In the case of a single principal, what would occur to the business in the event of the principals death? How could he/she secure this asset for their beneficiaries or estate? Copyright TAFE 2014

TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession Death/TPD of principal In the above instance, unless the principal has family members working as qualified and licence financial planners in the business, the business would have to be sold, rather quickly Therefore it may not fetch a fair or appropriate price and in fact, in some instances, it could be akin to a fire sale! Most of this can be avoided by having adequate insurances in place and a buy sell agreement that has been negotiated and signed in advance, with another individual or company. Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management

Business Contingency and Business Succession Death/TPD of business partner(s) The contingency plans for this event are broadly similar to the preceding one It could be alleviated with appropriate insurance and buy/sell agreements. Consideration may need to be provided for a re-entry plan i.e. In the event of the principal or business partner recovering sufficient from the TPD to want to come back to work (part time or other wise) in the business. Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession Loss of key staff Key staff need to be identified and nurtured

A clear and meaningful career path needs to be mapped out for them and reviewed with them at regular intervals (at least annually). Depending on their seniority and worth to the business, they may also need to be provided with a stake in the business Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession Loss of key staff No staff member should be indispensable. Legal documentation needs to be duly completed to ensure that in the event of a key staff member leaving the practice, the clients and key information/systems etc, stay with the practice In this event, the principal or other senior staff should personally call up all the clients that were dealing with the staff member that has departed the company, These clients should be re-assure that their interests are still being looked after by another skilled and experienced adviser.

This new adviser needs to be introduced to these clients at the earliest opportunity. The principal and senior staff of the practice should have the personal contact details of each employee stored in a location that is readily accessible, in case of emergencies Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession Loss of key clients Some practices, have a few clients who individually generated a very large percentage of revenue for the practice For instance one client (or a clients as part of one family), could generate up to 10 or 20% of the revenue for a practice. Whilst this in itself is not necessarily bad, in the event of this client(s) leaving the practice, the practice could suffer a considerable and immediate fall in revenue. Clients could also leave due to poor service or poor service, or could be poached by a competitor claiming to offer a superior package. Principals need to be pro-active and anticipate this event, even before it occurs and therefore be in a position to take adequate steps to prevent it from happening, or

reduce the severity of impact if it does happen. Advisers should avoid the pitfalls of over-promising and under-delivering it is generally better to utilize the opposite (i.e. Under-promise and over-deliver...) Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession Loss of reputation Its been said that a reputation takes a lifetime to build and a instant to lose Some advisers get into bad habits, either as a result of greed, sloth or both. Given the intense scrutiny of legislator and compliance mangers, it is only a matter of time before these advisers get caught. Even a temporary loss of license (i.e. Disqualified for one year or 6 months etc) could mean that an advisers chances of re-entering this small knit industry are severely hampered. Principals need to ensure that both they and their staff adhere to the highest fiduciary standards. An intentional or unintentional mistake on the part of a junior authorized representative can have catastrophic effects on the reputation of the

company or the entire dealer group. Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession Failure to adapt to change In todays global coupled economy, change is swift and sometimes unpredictable This is even more pronounced in financial planning, due to intense competition for clients, mergers and acquisitions amongst financial providers, scrutiny from media and regulators and legislative changes Principals therefore need to have a nature that is adaptable to change and also have systems in place to necessitated changes in the business as dictated by circumstances. The business model needs to be reviewed at regular intervals and if necessary, redundant process and systems need to be pruned. The core team of the practice (principal and senior advisers and practice manager) need to be pro-active and model how proposed regulatory or legislative changes or

mergers of dealer groups, would affect their revenue and service offerings Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession The following flow-chart illustrates some of the sequences in Business Contingency Planning Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession Exit Strategies

Some advisers believe that they will never retire! They love what they do and wish to keep on working. A few decades ago, a large proportion of financial advisers were above 50 years old and many were in their late 60s or older. However, the raft of significant changes and increased compliance requirements have meant that some of these older advisers have decided to cash in and sell their business. However...... Copyright TAFE 2014

TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession In these instances, the advisers business has grown somewhat haphazardly over the previous decades, and many such advisers had little knowledge about the true net worth of their business. Most records were still paper based and a large proportion of revenues were composed on trail commissions (i.e. Passive income) The key rule to follow for any adviser wishing to commence their business is to keep in mind at the outset, that one day, the business will be sold.

Therefore, process and systems need to be transparent, need to be documented and need to be updated at regular intervals The principal needs to be aware of the net profit of the business and the various components of this profit for instance: Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession How much of the net revenue is derived from fee for service, how much from investments and how much from personal insurances etc

Who are the most profitable clients and how can they be better serviced? Who are the least profitable clients and how much if anything are they contributing to the business? In many of these instances, financial advisers would actually be making a on-going loss in continuing to retain these clients Whilst it may seem unbelievable, this is more common than you may think Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission

Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession A decision has to be made therefore, on either how to make these clients profitable this can be done by increasing the fees or Encourage the client to move to another adviser The main reason that this occurs, is that some financial advisers are constantly in hunter gatherer mode, continually seeking new clients Clients are signed up without a clear idea of whether they are the right long term fit for the practice

This approach will lead to significant issues related to client management, compliance and eventually to the future viability of the business Compliance and rules must be followed regardless of whether a client is profitable or not an adviser cannot cut corners in this respect, just because a client is unprofitable or a C Class client. Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Succession www.stage2planning.com

Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession In relation to Business Succession, as Deena Katz states, A practice is based on a personality. If the personality leaves, the practice dissolves A professional practice (i.e. Business) is dependant on structure, philosophy and continuity.

It does not depend on any one personality As the financial planning profession matures in Australia, it will be the norm for businesses to outlive their principals effective business succession planning therefore is vital Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession As people live longer, retirement (i.e. Exiting the business) at 60 may no longer be an attractive option.

Many principals may wish to slow down at 60, but continue to work part time In these instances, they may wish to continue to have some (albeit smaller) say and/or stake in the business Principals have the options of grooming a successor or considering an outright sale Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning AFPLN305A Financial Planning Practice Management Business Contingency and Business Succession

In conclusion, as is apparent, if a business fails to plan, it is planning to fail Effective and continuous business contingency and business succession planning is no longer the preserve of very large organisations. Even smaller practices need to engage in this and seek external professional assistance to facilitate and manage this process. Copyright TAFE 2014 TAFE NSW -Technical and Further Education Commission Advanced Diploma of Financial Planning

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