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Four Keys to Finding the Right Contingency Plan Partner

Advisors need to understand they can’t go it alone.

I recently had an eye-opening exchange with a fellow advisor at an industry conference. On the surface, he was like so many others in this space, having started a prosperous solo practice and possessing an insatiable drive to serve clients and build his business. Professionally, everything seemed in place for him and he looked to have a bright future.

But as he told me a few years back, his prospects didn’t always look so great after he was diagnosed with cancer – which, as you might imagine, temporarily turned his life upside down. Upon hearing the news, naturally his concern immediately turned to his family: What would they do without him? Thankfully, years earlier he had taken out an insurance policy and already had an estate plan in place. That put his mind at ease a bit.

Then, he thought about what would happen to his business, and in what turned out to be a strange twist, a good diagnosis from his doctors almost became a major hiccup for his practice. Because the cancer was detected early, it was eminently treatable and a full recovery was expected. That was the good news.

The bad news, however, was that he did not have a contingency plan that would cover him in the event of a temporary disability caused by sickness or a major accident. Luckily for him, he bounced back much quicker than his doctors initially thought, allowing him to save nearly all of his client relationships. Had he been sidelined much longer, though, he could have lost his clients, his business and, ultimately, his livelihood.

According to a recent fact sheet compiled by the Social Security Administration, most Americans believe there is only a miniscule chance that a disability will prevent them from working for three months or more at some point during their career. But the actual odds are close to 25 percent. That’s too great a risk to take for any advisor, especially if you have a small or solo practice. Here are some top things to look for in a contingency plan partner, someone who can help keep your business afloat and take care of your clients in the event you become disabled on a temporary basis:

Make sure they are within the same broker-dealer and custodial network. This will make the transition as seamless as possible for your clients, who will have access to the same set of services, investment solutions and products via your contingency plan partner. Among other things, it also means clients won’t be burdened with troublesome logistical items such as repapering, only to have to go through the process again once you are fully recovered – which would be an enormous waste of time for all parties.

Team with a large group. Typically, it’s not a good idea to have a contingency plan partner that is also a solo practitioner or part of a small team, since they are unlikely to have the excess bandwidth necessary to absorb an entirely new roster of clients, even if it is just for a short time. As such professionals can attest, the day-to-day grind of running a small business can be difficult, and with only so many hours in the day and limited administrative support it makes an already delicate task almost impossible. The best contingency plan partners, therefore, have a large team of advisors and extra administrative resources to handle the swell of temporary work when you are away.

The same culture, same investment approach. Just as clients need to be comfortable with you, you need to be comfortable with whomever you entrust to take over your business, both from a service and investment approach standpoint. Essentially, the only question you need to ask is this: Would you do business with this advisor if you were the client? If the answer is no, continue your search. It could require some vetting and a lengthy get-to-know-you process to find the right fit. But if your partner is not an effective steward of your business, you will lose clients.

Someone younger but qualified. As a practical matter, your contingency plan partner should probably be younger than you – or at the very least someone that is not planning to retire in the near future – and in good health. This is just being smart and playing the percentages. (After all, this is your backup plan, and you want to make sure they aren’t going anywhere). And in keeping with the above, they need to be professional, knowledgeable and capable of delivering world-class service and advice. Finding someone who meets all these criteria can be a delicate balance. But if you find the right fit, as an added plus there’s no reason this relationship cannot form the basis of a succession plan when it comes time to retire and sell your firm.

Advisors need to understand they can’t go it alone. Indeed, much like you should never have to go through a personal trauma alone, professional headaches should not be something you have to confront by yourself either. If you do not have a contingency plan, take the steps to get one today, because if you wait till it’s absolutely necessary, that’s when it is too late.

 

Steven Dudash is President of IHT Wealth Management (www.ihtwealthmanagement.com), a Chicago-based firm.

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