Why founders must decouple from their brokerages to preserve wealth

As MPA’s recent deep dive revealed, brokers are now at the centre of succession planning transactions for professional services firms.

While accountants may guide clients on tax implications with lawyers structuring the deal, brokers and bankers are increasingly at the coalface of these discussions – ensuring incoming partners have the capacity to fund their stake and that the transaction is commercially viable.

Yet, ironically, many brokers lack robust succession plans for their own businesses. And as the broking industry matures and more founders contemplate their exit, Ash Playsted, director and co-founder of Recludo Group, is concerned there’s still a glaring shortage of practical, real-world guidance.

“Most brokers think they have a succession plan because they assume they’ll sell their trail book one day. That’s not really a plan. That’s an outcome,” said Playsted in a discussion with MPA.

A proper succession plan should be about building a business that can keep running without the founder being at the centre of every business decision.

It is not an easy task – founders are very often the touchpoint of the most important client relationships within a brokerage. But herein lies a big risk for the longevity of a good brokerage.

“When that’s the case, the value is tied to the individual, not the business. And this rarely releases the full value of the business. That’s where the risk sits,” said Playsted.

Read more: Inside the trail book bull market

If a founder fails to put a proper succession structure in place, they could find it hard to step back from the business when the time comes.

Playsted outlined three reasons why a brokerage is often tied to ongoing founder involvement:

• Many brokerages are built to generate cash flow rather than enterprise value. “Systems, leadership structures and client ownership models are rarely designed with transferability in mind.”

• Value creation often happens incidentally rather than deliberately. “Revenue grows, but enterprise value does not necessarily compound at the same rate.”

• Succession planning is frequently deferred until founders begin contemplating retirement. “By then, the window to reshape the business may already be narrowing.”

A good succession plan should protect what the founder has built over their career. It should give them flexibility, keep clients looked after, and put the founder in a position to actually benefit from their hard work.

Through his work with Recludo Group, Playsted works with founders to address these issues.

“It’s about helping them move from a founder-led model to something that can operate at scale,” he explained. “Having been through it myself, and worked with a lot of brokers over the years, we focus on what actually works in practice. The goal is simple. Build a business that creates value now and gives you options later.”

Drew Ivory sold 51% of his business PBI Mortgages to Recludo Group in February last year in exchange for an advisory model with a tangible investment that he was not previously privy to.

The partnership gave him access to experienced industry leaders, an operations team, and corporatised policies and procedures that small businesses often lack.

It also helped with smarter hiring, new marketing and lead‑generation strategies, and better deployment of capital for higher ROI.

Ivory accepted giving up majority ownership, saying: “I’ve put the 51% to bed pretty quickly because the whole rationale is that my remaining 49% becomes worth a whole lot more than the 100% I had before.”

Addressing the wealth gap

Poor succession planning also risks creating a ‘wealth gap’, where the founder overestimates what the business is worth – or what the market is willing to pay for it – when it comes time to exit.

Many brokers measure the worth of their business through trail multiples, “but if you’ve built a team, strong systems, and consistent deal flow, there’s more value there than just the loan book. The risk is that without planning, that value never gets realised. You end up selling a book when you’ve actually built something much bigger”, said Playsted.

Without proper succession in place, a trail book risks becoming a wasting asset – as clients refinance off of, or pay down, existing loans, annual trail income starts to decline.

A founder should therefore be thinking about succession planning when the business is growing, not when they’re finally ready to exit. The things that make a business transferable take time to nurture, noted Playsted. “You can’t build them in the last couple of years.”

Uncoupling a brokerage from its founder requires a total mindset shift. The founder needs to transition away from being the main dealmaker to focus on building the structure around the business.

That requires mentoring and training up other brokers, recruiting support roles “and making sure clients interact with the business, not just one person”.

Playsted added: “Once clients trust the team and the brand, not just the founder, the business becomes far more valuable and much easier to scale.”

It is risky to assume that strong income automatically translates into wealth.

Playsted explained: “A mortgage broking business generating $400,000 or $600,000 in annual income can feel extremely successful. From a lifestyle perspective it often is. But income tied to the founder’s effort stops when that effort stops.

“Wealth is the capital that continues producing income regardless of whether the founder remains involved. Income funds today. Capital funds tomorrow.”

Playsted outlined five big misconceptions about succession planning:

• It only matters later in your career

• Assuming selling the trail book is the plan

• Believing the founder has to stay at the centre of every client relationship

• Treating it as a legal or financial exercise, when it’s really about how the business runs day to day

• Thinking it means giving up control, when in reality it gives you more options

Drilling the point home, Playsted warned: “Succession planning, enterprise value creation and founder optionality are not activities reserved for the final years of a business. They are strategic disciplines that should begin much earlier.

“For an industry built on helping others plan their financial futures, it may be time more of us applied the same discipline to our own.”