From the September 2008 issue of Wealth Manager Web • Subscribe!

The Cobbler's Shoes

On Friday, June 13, Tim Russert, NBC News' Washington bureau chief and the moderator of "Meet the Press," died after suffering a heart attack. He was 58.

According to news reports, a cholesterol plaque ruptured in an artery, causing sudden coronary thrombosis. Doctors say such an occurrence is very hard to predict--even with the best tests.

Why bring up this tragic story? Because it is one of those things that happen in the public arena that causes us to take a step back and consider our own situation. The randomness of this tragedy and Russert's age are what really hit me. Randomness: He was at his desk when it struck, and his age is around the median age of wealth managers.

My first instinct was to write about discussing effective estate planning with your clients, but as I was about to strike the first key, it occurred to me that we probably do a good job of making sure our clients are prepared for the unexpected--but we do not do the same for ourselves. A variety of studies and surveys on the wealth management business show that as an industry, we are severely lacking in well-thought-out succession plans for our practices.

So, now is the time for you to take a step back and ask yourself the "what ifs?" Before you do anything else, you must be sure that you have a succession plan in place and/or that the plan you have is still appropriate.

You may think I'm being overly dramatic here, but I have seen it over and over again--as I am sure you have as well--thriving practices that have been thrown into a tizzy when the unexpected happens. The event doesn't have to be as final as death; after all, a disability can be just as devastating. According to the American Council of Life Insurers, the harsh reality is that one-third of all Americans between the ages of 35 and 65 will become disabled for more than 90 days. In addition, one in seven workers will be disabled for more than five years. The bottom line is this: Without a plan, you will rarely see favorable financial (and emotional) results for you, your family and for your clients.

With this in mind, I called David Grau, Sr., founder and president of FP Transitions [], to hear his thoughts on these matters. The company provides valuation, continuity planning and succession planning services to the financial services industry, nationwide. They describe themselves as the leader for internal transactions between employers and employees, between family members, and as the pioneers of the Internal Stock Ownership Plan (ISOP). My first question to Grau was this: What is the major cause for a lack of succession planning?

His answer was to question me back: "What do you mean by succession planning?" Succession planning, he says, means different things to different people: For some, it's about the unexpected and retirement; for others it's only about retirement.

So, in the interest of clarity, when we talk about planning for unforeseen events, we'll use the term "contingency planning," and when we mean a retirement exit strategy, we will use the term "succession plan."

The major cause for the lack of contingency planning is both very simple and yet complex. Basically it comes down to the fact that--just like our clients--we are human beings with real emotions. Continuity agreements are not focused on the joys of retirement, but rather on death or disability--facts of life that most of us would rather not deal with. But just as we have to remind clients who are hesitant to have these types of discussions, by doing nothing you have, in fact, put a plan in place. It is not a good plan, or a plan that you would purposely choose--but it is a plan with its own ramifications. In fact, it is probably a plan that is filled with pain, suffering and chaos--not only for your family, but for your clients as well.

David Grau and I agree that the effect of an advisor's death or disability on clients tends to be something that is not on our radar screen. We put so much effort into focusing on clients' individual goals and protecting them from market volatility and unforeseen disasters that we take ourselves out of the picture. But without your own plan for "unforeseen events," you may actually be putting clients' individual life goals at risk. So remember, you are not only putting yourself and your family in harm's way, you are also putting your clients' financial lives at risk. Thus, if nothing more, you owe it to them as a fiduciary to have a plan in place. Furthermore, I have seen people lose out on very profitable opportunities because when a potential client asks, "What happens to my account if something were to happen to you?", they do not have a process in place that seems reassuring to the prospect. You should be able to answer this question without hesitation, and that answer must be clear, concise and well defined.

An important takeaway from my conversation with Grau is that each firm's culture, leadership, goals, needs, etc. are different, and thus each plan should be as unique as each organization. Furthermore, you should think about a "continuity plan" as descriptive of a process, or a concept, in addition to any one specific agreement, form, or method. In essence, you must plan for something that, if it occurs, will happen in an unpredictable manner, on an unknown date, and with an unknown level of severity. Thus, the challenge in continuity planning tends to be two-fold: (1) Finding the right continuity planning "partner;" and (2) structuring a plan that allows that partner to take over for you suddenly (and with a disability, temporarily), accept the responsibilities, and then step back out if and when you return.

If you are a sole practitioner, he urges you to prepare what he calls a Practice Continuity Manual that details operating instructions, services offered, key personnel and all payroll and banking information.

Another reason Grau cites for the lack of contingency planning is that most wealth management organizations are not publicly traded; you can't just click a button on your computer to learn your firm's value. Advisors tend not to manage the "downside risk" of one of the largest and most complex assets in their personal portfolios. The equity that you have in your practice's value must be protected as much as possible. Accordingly, a must-do is to determine the value of your practice and understand what you're trying to protect.

It sounds obvious, but only when you truly understand the value of your organization can you design the right continuity plan. There are a variety of methodologies to determine value: Make sure that you take the time to use one that delivers a reliable and correct result. Grau recommends using one that focuses on gross revenues adjusted for transition risk, cash flow quality and marketplace demand. In other words: Will the revenues be repeatable and continual? This does not have to be a daunting and expensive task. Grau advises using a firm that specializes in valuing organizations similar to your own.

Once you have a plan in place, can you sit back and relax? Well, yes--but not forever. Just as your clients' wealth plans are a dynamic, changing entity, so, too, is your contingency plan. As practices grow and develop, it is very likely that a solution that worked well for several years is no longer ideal. Revisit your arrangements annually to ensure they remain effective.

And just as we advise our clients to include--or at least communicate their financial plans with--family, Grau urges advisors to share continuity plans with both their biological and work families. The key to the success of any contingency plan is the assistance of the disabled or deceased advisor's staff during and after the transition. Clients must feel reassured, because this can make or break the entire process.

I don't have to remind you that it has taken extraordinary energy and effort to create your wealth. But understand this: It takes equally concentrated focus and desire to preserve it.

Susan L. Hirshman, CFP, CPA, CFA, CLU, a former managing director for JPMorgan Asset Management, operates a wealth management consulting business in New York. She can be reached at

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