A growing number of Independent Financial Advisors (IFAs) and brokers are considering emigration as the South African economy continues to splutter. For these professionals, the challenge is how to realise the true value of their existing businesses in order to help set themselves up in their new domicile, says Joshua Marran, Integration Specialist at GCI Wealth.
“While there are no reliable emigration figures, anecdotal evidence suggests that more and more of our younger professionals are taking a long-term decision to move elsewhere – we are certainly seeing more of this when we engage with IFAs. They are obvious candidates for emigration as they have a readily transportable skill and are themselves financially stable,” he says. “However, many of them find it hard to realise the value of their local businesses.”
Marran says that selling a relationship-based business like an independent financial advice practice will only realise a fraction of its true value. The typical sales price of such a business is around 1.5 times to twice the annual revenue. For example, a financial advisor turning over a million rand a year could expect to realise R1.5 million to R2 million for his or her business as a going concern – a capital sum that would come nowhere being able to generate a similar income stream. In fact, selling a business like this is virtually giving it away.
This is a common challenge faced by IFAs and brokers who are approaching retirement. In response, GCI has developed a process for helping them to set up an annuity income based on the revenue the business generates into the future.
“Our approach, which has now been tested successfully, is to help the financial advisor/ broker to transfer his or her existing business to GCI in a phased manner while improving its profitability,” he says. “After the advisor/ broker emigrates, he or she continues to enjoy a portion of the revenue generated by his or her clients for as long as they remain GCI clients – even when they take on new services after the broker has left the country. The revenue split is negotiated upfront.”
The first step is transfer the advisor/ broker’s back-office processes, including administration, compliance and commission reconciliation, to GCI. This has the immediate effect of reducing the cost base and thus increasing margins. More importantly, the advisor/ broker now has more time to spend cementing relationships with clients and introducing them to GCI’s team of financial advisors. Clients have time to get used to the transition and also to experience higher levels of service. This carefully managed process ensures that clients are more likely to remain with GCI when the advisor/ broker finally emigrates.
“An annuity income stream, even if it is in Rand, can make all the difference when one is setting up a new business from scratch in a foreign country,” Marran concludes. “Independents spend a lot of time and energy building up their businesses, and our intention is to give them a way of realising its true value in terms of annuity income. For us, the benefits are also substantial because we are able to expand our client base – a classic win-win scenario.”