Financial planning principals could make their business almost four times more profitable by having an effective succession plan in place.
Seven out of 10 Australian practices have no succession plan and an average profit per principal of $123,367, according to financial services consultancy Business Health.
The group's HealthCheck database of more than 1000 practices found 30 per cent have a written exit plan and profit per principal of $230,546.
It said the profits of principals rocketed to $447,197 for the five per cent of practices that had an effective plan covering all contingencies, with an identified successor and funding.
"I think everyone acknowledges succession is important but thinks it isn't urgent," Business Health principal Rod Bertino told InvestorDaily.
"In the last five years there's been a lot of stuff needing immediate attention like compliance, staffing and clients."
However, succession is an immediate issue for the majority of practice principals in their mid to late 50s and who are planning to transition some or all of the equity in their business at 60.
"We remain somewhat perplexed at how these businesses are going to optimise their value in the form of a payout in the years to come," he said.
"The even greater irony is that effective succession planning will produce improved profitability today."
To kickstart a succession strategy advisers must first get their business sale ready, Bertino advised.
They need to decide what role they would like to take in the business, if any, when it is transitioned and then draw up a list of successors or buyers and contact them, he said.
