From the December 2012 issue of Investment Advisor • Subscribe!

Why Your Continuity Plan Is More Critical Than Your Succession Plan

You have accepted the responsibility to care for your clients. You have the same responsibility to your family and employees

Succession planning has been a hot topic in the industry for the past couple of years. Many surveys have shown a dismally small percentage of advisors have created a plan for their own retirement, even as we decry the small percentage of Americans who have planned for their retirement.

The hue and cry over succession planning, however, misses the truly critical risk management issue facing advisors—the lack of a continuity plan for their practice. Although the term “continuity plan” is sometimes used to refer to a contingency or disaster recovery plan, I’d distinguish between the two. In a disaster—whether a fire in your office or something on the magnitude of Hurricane Sandy—the advisor is still available to make decisions, lead the staff and communicate with clients. A continuity plan helps get the staff, family and clients through a period when the advisor is unable to manage the business due to illness, injury or death.

Continuity planning should take priority over succession planning. If needed, a continuity plan is implemented immediately due to an unexpected disruption in your ability to work, rather than over a period of months or years like a succession plan. Also, a succession plan typically assumes you will not return to run the practice; a continuity plan must address the possibility that you will. 

As part of your 2013 planning process, set up discussions with your staff and your family to brainstorm the question, “If I were in an accident tonight, what decisions would need to be made and what steps taken to ensure the business continues running in the short term?” Who from your family will inform your staff? Does that person have home or cell phone numbers for everyone on your staff? If that person is your spouse, do you have a Plan B if your spouse is also injured in the accident? Who will send communications to clients? When will they be sent and how? Who can sign checks in your absence, and are there specifics to things like funding payroll that only you know? When do your attorney, accountant or other key business relationships need to be informed? Will your family or staff take care of that?

Although your staff should be able to carry the business through the first few days, if your time away from the office will be longer than that, you will need someone with the appropriate licenses to serve your clients. Whether this continuity partner is a colleague with his or her own solo practice or an advisor within your branch, put the agreement in writing. The industry is rife with stories of friendships and partnerships that ended over who received the compensation—the advisor (or advisor’s estate) who originally owned the client relationship or the advisor who stepped in to take care of the business. The agreement addresses two important issues: how the advisor and the continuity partners will be compensated until the advisor can return to work, and if the advisor is unable to return to work, how the book of business may be acquired by the continuity partners.

When you have your continuity plan ready (maybe not perfect, but usable), share it with everyone it impacts and store copies in safe locations that can be quickly accessed in an emergency. Review your continuity plan regularly, and update it to reflect changes to your personal life and your business. If major changes occur—you move your office, add another advisor to the practice, get married or divorced—don’t wait for that regular update; get that continuity plan out, make the changes and share the new version with everyone.

As a financial professional, you have accepted the responsibility to direct, guide and care for the financial well-being of your clients. You have the same responsibility to your family and your employees. These people rely on you every day to make decisions that impact their well-being. That responsibility should come before the succession plan for your retirement.

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