Structure for succession: how to end an era

For an industry based around the retirement of others it is surprising how few financial planners practice what they preach about preparing for the inevitable. Adelaide-based adviser Gerard O’Brien, explains how he came to grips with the problem.

At 59 Gerard O’Brien’s profile is typical of many in the financial planning industry: a background in ‘old school’ financial services firms; a change later in life to running his own practice; and now looking to transition the business as his own retirement looms. For most of the last four decades O’Brien has been associated with MLC including 28 years in various superannuation-related roles in Sydney and South Australia. He took a short break from the institution in 1992 when he launched his Adelaide-based Wealth Concepts financial planning practice under the auspices of Securitor but returned to the MLC fold four years later when it got its “act together” in the financial advice sector. “I suppose it was easy to come back to MLC – I knew a lot of the people there already,” O’Brien says. Since then Wealth Concepts has been under the Garvan banner and the practice has grown to include two other financial planners – Josephine Fuller and Michael Smith – as well as six other support staff. While he has spent the last 15 years building up the business, over the last 12 months O’Brien has focused on structuring the practice for his retirement. Firstly that involved buying out the business of another Wealth Concepts planner, Otto Baumgartner, who was also on the verge of retirement. “He got an offer from someone else, which we knew he would, so that forced my hand to make an offer,” O’Brien says. But incorporating that business into his own practice was not the most difficult part of the process. Just over six months ago O’Brien bit the bullet and created a corporate structure for the business – a decision he had contemplated several years previously but put on the backburner then because of capital gains tax issues. Selling his practice into the corporate structure has incurred a CGT liability of between $70-80,000 – a figure which may have been lower if implemented when the idea was first floated. “I wish I’d done it five years ago,” O’Brien says. Now that it’s done, however, he says Wealth Concepts can concentrate on marketing and building up referrals under the “same process”. Under the current arrangements O’Brien holds 72 per cent of the equity and Fuller 24 per cent while Baumgartner retains a minority shareholding. O’Brien’s retirement strategy, which he developed with the help of Garvan, is to sell down his shareholding to Smith over the next four to five years. “When I reach 51 per cent, I’ll retire,” he says. “Eventually I’ll sell down to about 25 per cent.” To help Smith with the share-purchasing process MLC helped set up a trust, with legal firm The Argyle Partnership, which will receive excess income generated by the business. Smith has spent the last decade working as a planner in Sydney and Melbourne and O’Brien is clearly pleased to have someone with such experience to carry on the development of Wealth Concepts along with Fuller. Although retirement appears close O’Brien remains ambitious for the growth of the business, prompted partly by retaining an equity stake but also because of a genuine desire to see his original plans come to fruition. “I always wanted Wealth Concepts to expand interstate and overseas,” he says. Although international growth is more a “dream than a plan”, O’Brien is confident of opening Wealth Concepts offices interstate over the next few years. He says philosophically the business is about helping clients accumulate wealth in the “boring old way” by using tried and true concepts – hence the business’ name. As such the MLC multi-manager process sits comfortably with O’Brien’s approach. “There’s no research house in Australia that has the resources MLC does to select good managers,” he says. At the same time he is not resistant to change and says the practice will move to MLC’s new ‘no advice fee’ platform Fundamentals. As well the group is also considering adding separately managed accounts to its repertoire of products – something MLC is currently investigating. The Wealth Concepts fee structure is also up with current practice where an upfront fee is charged for plan writing (between $1-10,000) and an asset-based ongoing service charge. “We rebate all trails but I still haven’t got my head around how to go from charging trails to a flat fee for ongoing service,” O’Brien says. Despite the new round of criticism of financial planners prompted by the latest ‘shadow shopper’ report and the Westpoint scandal he says his practice has remained immune. In fact, the furore has even enhanced the reputation of Wealth Concepts as O’Brien was able to tell his clients that the group had reviewed Westpoint products and found them unsuitable. “The loyalty of my clients speaks volumes about the way we do business,” he says. “In the latest investment shake-out a few years ago I only lost one client.” Name: Gerard O’Brien Business name and location: Wealth Concepts, 431-439 King William St, Adelaide Dealer name or self-licensed: Garvan Financial Planning (MLC) Number and designation of staff: Practice Manager, Administration Manager, 2 Client Service Managers, Receptionist, Part Time Paraplanner, 3 Advisers Area of speciality: Pre retirement planning, SMSFs, Wealth Accumulation Strategies for young professionals and sports people Relevant qualifications: All advisers have CFP Paraplanner has DFP Are you a member of the FPA?: All Wealth Concepts advisers are Number of clients: Approx 500 clients actively serviced on service packages. Thousands not on service packages. Funds under management (or funds under advice): $60 million Masterkey Custom, $50 million MLC Masterkey, $2 million retail