Top 5 Advisor Continuity and Succession Planning Questions

Posted by Maria Considine King

May 14, 2014 at 1:30 PM

advisor continuity and succession planningAdvisor continuity and succession planning are vital to business stability. According to the 2012 IN Adviser Solutions Succession Planning Study, however, only half of all advisors have an adequate succession plan in place.

That's a pretty staggering statistic considering that advisors build their careers helping clients prepare for the future.

Advisor continuity and succession planning helps ensure your business's long-term success, but it can be difficult to know where to begin. To help you start, here are answers to a few common questions:

1) What's the Difference Between Continuity and Succession Planning?

Continuity planning for advisors 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, on the other hand, is the naming of a successor for your planned exit from the business, usually your retirement.

In both instances, good planning involves creating a buy-sell agreement to lay 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. This is necessary to ensure that your clients receive the best possible service, even if you experience a tragic event. If you want to retire in the next few years, you need to start planning for succession. In this case, you'll need both plans.

3) How Do I Create a Smart Continuity Plan?

Few advisors consider that a tragic, unplanned event could happen today. This misguided assumption leads many to name continuity partners whom they know and trust, but cannot take over the practice tomorrow. Your current advisors—no matter how intelligent—may not have the proper licenses and designations to work with the entire book of business. Registered staff members may need several months to upgrade licenses and designations, find an OSJ to supervise and mentor them, and make the leap to producer, lead advisor, and business owner.

Smart continuity planning requires naming a continuity partner who can step in now. In most cases, the best choice is 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 decided on the ideal continuity partner, draw up an agreement. Here are a few tips:

  • Inform your broker/dealer regarding 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 your business, typically for your 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.

In preparing your succession plan, 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. Begin planning on the right foot with the following steps:

  • Engage stakeholders fully. Your partners, employees, mentors, and other stakeholders will have valuable input for your planning. Ask for their insight early on in the process; their fresh perspectives may prove invaluable.
  • Educate yourself as well as possible. Read as much as you can about succession and continuity planning for advisors. Learn best practices that may succeed within your business. Be sure to stay tuned here for upcoming articles with important information and tips for your succession planning.
  • Prepare 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.

Do you have a continuity plan in place? What about a succession plan? Share your thoughts, challenges, and best practices with fellow advisors by commenting below.

New Call-to-action

Topics: Practice Management, Succession

New Call-to-action
The Independent Market Observer, Brad McMillan

Follow Us