What if something happens to you? We all know that unexpected events—such as accidents, serious health problems, or even death—happen every day. The global coronavirus pandemic has certainly driven home this sobering lesson. Eventually the question “What if?” will become “What now?” when a crisis occurs.
To protect your practice in the event of your disability or death, creating a business continuity plan is critical. It’s also essential for earning the confidence of your existing and prospective clients, who may ask what you have implemented to safeguard the future of their finances should you become unavailable.
To properly address continuity planning for an advisory practice, my colleague Derenig Kostikian and I recommend taking the steps discussed below.
1) Find the Right Continuity Partner
In many cases, the best candidate might be someone in your office or professional network. Keep in mind that the candidate must be an advisor. Although a registered staff member might seem like a good choice, he or she cannot step right in as an advisor, which would jeopardize the continuity of client work. To get started, consider candidates from these pools:
G2 advisors. A younger, highly capable advisor who has proven to be a good fit for your culture provides numerous advantages. With more experience and mentoring, you believe this advisor can become a worthy successor. But what if your plan needs to be fast-forwarded? Your continuity partner must hit the ground running. So, until you determine that your G2 candidate is ready, you may want to designate a short-term alternative partner.
Lead advisors in your firm. This candidate understands your policies and will have already demonstrated the ability to successfully manage a practice. He or she could step right in to handle your clients. This scenario provides a big competitive advantage—and it’s the reason many advisors form a multiadvisor or ensemble arrangement in the first place. Your clients would likely feel secure having this individual take over.
Other advisors. Perhaps you practice solo or cannot find a candidate within your firm. In these cases, look to your existing network. Would any advisors with whom you’ve built friendships over the years be a good fit? It’s reasonable to assume your clients would be comfortable with a proven advisor you like and respect. If no one comes to mind, consider expanding your network by attending industry events and conferences.
When considering candidates, ask yourself these questions:
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Will the advisor be up to the task of serving your clients?
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What is the advisor’s investment philosophy?
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What does the advisor’s service model look like?
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Does the advisor have a strong service infrastructure in place?
2) Document Your Plan
Once you’ve identified a good fit for your continuity partner, it’s time to put your plan in writing. You and your partner will need to negotiate the specifics. A formal buy-sell agreement for death or disability is the ideal continuity solution. Legally binding as to the terms of the sale, it ensures continued service to your clients and provides compensation to your beneficiaries.
3) Perform Regular Reviews
Over time, the circumstances of your business might change, so it’s prudent to revisit your continuity plan every three to five years. A G2 advisor, whom you once thought needed more experience, may now be more seasoned and prepared to step in. A lead advisor who was in place to take over might have left the business. Or you might finally have found a long-term continuity partner, so you’re ready to replace a stopgap plan. And, of course, regulations change frequently, requiring you to keep your plan in compliance with current rules.
4) Communicate Your Decisions
Sharing your decisions with clients is a very important part of continuity planning for an advisory practice. Discuss your plan in a client meeting every year, or at least every other year. By communicating a clear plan and an endorsement of your continuity partner, you’ll reassure clients they will be well cared for in your absence.
Being Able to Answer the “What If” Questions
If you become disabled or pass away without a business continuity plan in place, the situation for your clients, business partners, staff, and heirs will be difficult. The process of finding a suitable buyer can be especially challenging for family members who are grieving and struggling to understand the intricacies of selling a complex business. Meanwhile, advisory fees could cease if an advisor isn’t immediately named to your accounts, meaning your heirs wouldn’t receive compensation until a buyer is found.
For potential buyers, this situation is also difficult. Without you being available to make client introductions, no seeds will have been planted to refer clients to the buyer. Clients might not know whom they can trust. Your staff could be left in limbo while a buyer is identified and an agreement is struck.
The bottom line is that by planning in advance to answer “what if” questions, you can avoid hardship for everyone who depends on your business.
