Research suggests that half of all financial advisors don’t have a succession plan for their business. Though advisors build their careers around helping clients prepare for the future, it seems many are not walking the walk.
Your business’s long-term success depends in large part on the safeguards you put in place to help ensure that your clients continue to receive financial guidance even when you are no longer there to provide it. So, if you find yourself procrastinating on your own continuity and succession planning, we’ve got answers to questions that can get you started down the right path.
1) What's the Difference Between Continuity and Succession Planning?
Continuity planning is the selection and preparation of a continuity partner to assume the responsibility for your practice in the event of disability, death, or some other unplanned event. Succession planning is the naming of a successor for your planned exit from the business, usually your retirement.
In both instances, you need a buy-sell agreement that lays out the financial terms of the practice transfer, as well as the responsibilities of all parties involved.
2) Do I Need Both Plans?
All financial advisors should have a continuity plan in place. It’s necessary to ensure that your clients receive the best possible service, even if you experience a tragic event. If you are thinking of retiring in the next few years, you’ll need a succession plan, too.
3) How Do I Create a Smart Continuity Plan?
Few advisors consider that a tragic, unplanned event could happen today. This leads many to name continuity partners they know and trust, but who would not be able to take over the practice at a moment’s notice. Other advisors in your firm may not have the proper licenses or designations to work with your entire book. Registered staff members may need several months to upgrade their licenses, find an OSJ to supervise and mentor them, and make the leap from producer to lead advisor and business owner.
Smart continuity planning requires naming a continuity partner who can step in now. The best choice is often a practicing advisor who owns a business that is harmonious with yours. He or she will be able to successfully—and quickly—transition service to your clients and staff, as well as a sizable portion of your wealth to your heirs.
Once you have identified the ideal partner, draw up an agreement. Here are a few tips:
- Inform your broker/dealer of your wishes in the event of an emergency and create a what-if buy-sell agreement with your chosen continuity partner.
- Include a time frame for the duration of the continuity plan, perhaps three to five years.
- If you have one in place, discuss your succession plan with your continuity partner.
4) How Do I Create a Smart Succession Plan?
Succession planning enables you to plan your exit from the business, typically for retirement. A smart succession plan maps out how you will groom a successor to run your business according to your traditions, as well as the transition process leading up to your departure.
Be sure to carefully define the type of individual whom you want to succeed you. In addition to being able to afford your practice, he or she will, ideally, have these attributes:
- Your successor should be compatible with your practice. Your business represents your legacy, so you will likely want your succession partner to have comparable values and a similar way of addressing client needs.
- Your successor should be familiar with your "playbook." Are you an investment consultant or a wealth manager? Is your business fee-based or do you work in transaction-oriented brokerage accounts? Your successor should be familiar with the products your clients own.
- Your successor should be willing to learn about your business to ensure readiness when the time comes.
- Your successor should be flexible and amenable to accept current staff, policies, and procedures—as well as be able to work in particular locations during specific hours as needed.
5) How Should I Start?
Advisor continuity and succession planning isn't always easy. Start off on the right foot by:
- Educating yourself. Read as much as you can about continuity and succession planning for advisors. Learn best practices that may succeed within your business.
- Engaging stakeholders. Your partners, employees, mentors, and other stakeholders will have valuable input. Ask for their insight early in the process.
- Preparing yourself emotionally. The thought of a tragic event can be unsettling. Similarly, if you're considering leaving your practice in the next few years, it can be difficult to let go. These emotions make planning difficult. Take the time to prepare yourself to make logical, smart decisions.
Maria Considine King is vice president, practice management, at Commonwealth Financial Network®, member FINRA/SIPC, an independent broker/dealer–RIA.