Clients need one. Your family needs one. Regulators increasingly want you to have one. Surprisingly advisors have always wanted one. Have you guessed it? Yes. A continuity/succession plan. What is perhaps more interesting is that advisors are finally ready to address it. This week we thought we’d share with you the types of conversations we are having with advisors all the time. If you have not addressed this issue, perhaps you can relate to one of these eight stories.
- “I want to take care of my clients” The advisors we speak to truly care for their clients. Their clients are often more than clients. They are friends and family. And accordingly, the most common reason given for establishing a continuity / succession plan is to make sure clients are cared for in the event of death, disability or retirement.
- “My Clients Want Me to Address This Issue” Even were advisors not so altruistic, many clients are now letting their concerns be known. Mark Smith – a Pinnacle Advisor Solutions partner — left a large independent RIA to start his own firm in Virginia. He needed a continuity planning solution when he established his firm because he knew that his clients would demand one before following him to his new firm. More recently, we received a call from an advisor in Georgia. This advisor is young and in good health, but needed to agree to put a plan in place within six months before closing a large prospect. We are finding that whether clients articulate it or not, this is a top of mind issue. Several advisors we work with only discovered how clients felt once they informed clients they had put a plan in place.
- “I want to take care of my family” There is no one more important than our families although interestingly enough this has ranked third behind taking care of clients and an inability to identify a suitable firm to partner with. The truth is, your firm has an economic value and that economic value can play an important role in taking care of family upon your death, disability or retirement. One of our Pinnacle Advisor Solutions partners is a single Dad. He put a plan in place to care for his children should something happen to him.
- “Regulators are demanding a plan” While this is not quite true yet, the winds are certainly moving in that direction. Regulators are demanding a specific continuity plan but the current focus is on business interruption plans given the recent string of hurricanes and snow storms. That said, there is growing discussion that regulators are taking an RIA’s fiduciary responsibility to care for clients upon death, disability or retirement more seriously. Indeed, we spoke with a state regulated RIA just last week who contacted us in response to an audit. The regulators want a more specific plan for liquidation of his firm and the subsequent care of his clients.
- “My health demands that I address this now” While advisors regularly recommend that clients make insurance or estate planning a priority despite youth and good health, many advisors do not make it a priority in their own lives. That is until they are facing their own health issues. We are having a growing number of these conversations — which shouldn’t be surprising considering the average age of advisors is anywhere from 52 to 55 depending on the survey, and, as my father likes to say, “getting old ain’t for sissies”.
- “Don’t Let Perfect Get in the Way of Good Enough” Many advisors are good at their jobs because they seek out the best solutions for clients. Sure enough, they also want the best continuity / succession plan for their own practice. But sometimes they fail to put any plan in place because they are holding out for a better plan. They let perfect get in the way of good enough. Case in point. Late last year we had a conversation with a small independent RIA who did not have a succession plan, who decided he needed one and whose options were limited due to his firms particular circumstances. In the end he decided against our program because the economics were not “rich” enough. By contrast, a Pinnacle Advisor Solutions partner elected to engage in our continuity planning solution specifically because the agreement is “good enough” and revocable so she knew she could look for a more perfect solution when time permitted.
- “My Handshake Agreement Leaves Something to be Desired” When an advisor tells us he or she already has a continuity / succession planning solution in place, we often learn that it is really a handshake agreement that leaves a lot unanswered. A conversation we had last year highlights some of the issues. This advisor was sixty years old. She had two informal agreements with local peers. We uncovered several issues. First, the two advisors were ten years older than she which begs the question: were they her plan or was she their plan. Second, there was no agreement detailing price or process. Third, the firms were not a good match. She offered planning, one of the firms did not. And her investment philosophy did not match the other firm. In theory she had a solution. In fact she did not.
- “Who to Partner With?” Among those advisors who have decided to put a plan in place, the most common problem is identifying a suitable partner. The truth is that until recently there were not many firms offering an institutional solution to this problem. Now there are firms seeking to consolidate the industry who will buy your firm out today and let you stay on as a W2 employee. There are also a growing number of matching services like RIAMatch that can help you identify firms with which to enter a continuity planning arrangement. Of course, these deals still require a good deal of due diligence and negotiation … the time consuming reasons often cited for avoiding the process altogether. More recently, there are institutional options being offered by larger firms like Pinnacle Advisor Solutions that offer a good solution obtainable in a simple and painless process