By Maria Considine King
It’s not surprising that financial advisors are reluctant to face their own mortality, but you aren’t doing yourself—or your clients—any favors by putting off succession and continuity planning. If you find the idea of planning your retirement (succession) from the business too daunting right now, at the very least, you should get a continuity plan in place this year.
Let’s take a closer look at what is involved, why it matters to your practice, and how to go about implementing a plan.
Understanding the Differences Between Succession and Continuity
As a refresher, succession planning is the long-term, controlled transition of your firm to another owner-advisor. It may mark the kick-off to your retirement, or it may, for example, signal your continued involvement in your firm but in a different capacity: either with more time/energy focused on a particular client segment or with an entirely different work schedule.
Continuity planning, on the other hand, makes provision for the continued running of your practice in the event that you pass away or become disabled—an in-the-moment, unexpected transition that usually does not involve you. When you experience an unexpected event, it is a time of high emotion, disruption, and uncertainty. A continuity plan strives to minimize this uncertainty, provide a smooth transition, and allow for high client retention. All advisors should have a continuity plan, regardless of how long they plan to remain active in their firm.
Why Is It So Important?
Try this experiment: one day this quarter, when no client appointments are scheduled, don’t show up at the office. Call your staff to say that you are conducting a continuity drill; your team’s job for the next couple of hours is to figure out how they would respond if this were a real event, without the benefit of any input from you.
• What happens?
• What questions does your staff have?
• What critical processes would your staff attend to first?
• Whom would your staff contact to tell them of your situation?
Ask your staff to write down the steps they would take if the situation were real. Be sure to ask them to document how they would communicate the news to clients, your broker/dealer, and associated businesses. When you return to the office, review what happened and commit to putting a plan in place to ensure that a future drill goes more smoothly. You’ll likely see the need for a number of critical documents—including a continuity plan.
Even after conducting this type of drill, many advisors still resist putting an agreement in place. They get hung up on trying to find the perfect partner or worry about ceding control of their business. But in fact, the point of a continuity agreement is the exact opposite: to ensure that you remain in control over what happens to the business and the relationships you have built!
So let’s take a look at the steps involved in implementing a plan and ensuring that it has staying power.
5 Steps to Implementing a Continuity Plan
1) Establish an agreement with your chosen partner (by June 30, 2016). You may have a candidate right under your roof with whom you’d like to partner, or you may need to work with someone outside of your firm. Either way, document your agreement so that your intentions are clear. Reach out to your broker/dealer to see if it has a sample agreement to help you get started or can introduce you to qualified candidates.
2) Communicate the plan to your staff (by September 30, 2016). They need to know these continuity plan basics:
• Critical contacts for them to make if something happens to you
• Essential processes to prioritize
• Where to go for help
• Expectations for their transition to the new advisor, including how they will get paid in the meantime
Again, be sure to document these items and store them in an easily accessible place.
3) Inform your clients about your plan (by September 30, 2016). All of your clients (particularly your top clients) should be informed of your plan, so they know you have made provisions for the servicing of their accounts. Information you might want to share with them includes:
• The name and contact information for your continuity partner
• From whom they can expect to hear if something happens to you
• Your plan for ensuring that nothing falls through the cracks if you are no longer able to work
Of course, your continuity partner should be part of any communication sent to your clients in the event of a transition.
4) Assess your practice (by December 31, 2016) and identify areas that can be improved upon and increase the likelihood of a seamless transition. To help guide this process, ask yourself the following questions:
• Are all of your business documents up to date and easily accessible? This includes, but is not limited to, your business plan, marketing plan, disaster recovery plan (FINRA has a sample to get you started), employee handbook, job descriptions, and financial statements.
• Are operations streamlined? Here, a checklist of key activities and documentation of procedures will be essential. You’ll want to ensure that technology support exists for processes, job responsibilities are clearly understood, staff members are cross-trained, and there is regular communication between operations staff. Finally, be sure your client categories are defined and a tiered service matrix of client deliverables has been established.
• Is your investment strategy clear? To help answer this question, define models, if appropriate, as well as allocation strategies.
5) Commit to meeting regularly (e.g., once annually) with your continuity partner. Regular meetings will ensure that the arrangement continues to make sense for you, your partner, and your firms.
Continuity planning doesn’t need to be one of those tasks that you dread year after year. Make 2016 the year you get it done, and free yourself to focus on growing the practice you have so thoughtfully built.
This post originally appeared on Commonwealth Independent Advisor, a blog authored by subject-matter experts at Commonwealth Financial Network®, the nation’s largest privately held independent broker/dealer–RIA. To subscribe, please visit http://blog.commonwealth.com/.
Maria Considine King is vice president, practice management, at Commonwealth Financial Network®, member FINRA/SIPC, an independent broker/dealer–RIA.