Continuity Planning: The Missing Link in Most Succession Plans

We all go through tough times. I went through a particularly sensitive point in my business journey last year. While going through it, my attorney, the advisor I leaned on the most, had a heart attack and died on a basketball court. Only in his 40s, his loss was a terrible blow not only to his family but also to me at an already very difficult transition time.

(Related: When You’re Gone, Will Your Firm Endure?)

To make matters worse, his law firm (I hired them because they said they worked as a team) appeared to be even less prepared for such a loss than I was. Not only did they not designate another attorney to fill the void, they didn’t contact me — no email, no nothing — or even return my calls. I was on my own at one of the most difficult points in my business life.

I’m telling you this tale of woe not to get your sympathy (well, OK, you can feel a little sorry for me if you must), but to bring to your attention to what I see as a major problem in the independent advisory industry.

In recent years, there has been a considerable amount of attention directed at what was a major problem: an industry-wide lack of succession planning at a time when the baby boom generation of owner-advisors was starting its retirement phase. While that oversight has been largely addressed, unfortunately, I find that today’s succession plans often fail to address an equally serious problem for clients: continuity planning.

As the name suggests, and my own sad story illustrates, continuity plans address delivering high-quality client care in the event that one of your senior or lead advisors unexpectedly becomes incapacitated or worse. I realize that most of us would prefer not to think about the possibility of these events. But I can tell you from personal experience, the consequences of failing to do so can be devastating, emotionally, mentally and financially, to the clients involved.

(Related: If Advisors Get Dementia, What Happens to Their Clients?)

Yes, I realize that the services most financial advisors provide aren’t as immediately crucial as the ones I needed. But I’m sure I don’t have to remind you that most people have a lot of emotions tied up with the money that’s going to support them and their dependents far into the future. And, in my experience, many advisor/client relationships have existed for years and go beyond just the professional.

The point is that losing their financial advisor is going to be traumatic for many clients, especially ones in transition. (And the last thing you want to do is give them a reason to look for another financial advisor on their own.) So, here are the four elements that I recommend all of my clients include in their succession plans, from a not-so-good personal experience that truly hurt me:

1) Designate a successor. I know; you’d think this would be pretty obvious, right? But in my experience — both with my lawyer and my advisory clients — it does get overlooked. I have a theory as to why. Designating a successor for anyone, from the firm owner to junior advisor, involves making a choice, and somebody’s usually going to be left out. That can be uncomfortable for the decision maker, especially in cases where the candidates are pretty close in ability.

So it’s easy to procrastinate, figuring that you have lots of time to decide. Of course, when the worst happens, you don’t have lots of time and it’s too late. Bite the bullet, and use designating successors as a reward for excellence among your employees and a motivator for everyone. Or your successor doesn’t have to be one person; it can be another advisory firm.

2) Train the designated successors. Having been married to a career soldier, I know that the Army is compulsive about everyone learning the job of the guy ahead of them in the chain of command, and training the guy behind them to do their job. (Should you go into battle, opportunities to advance can open up very quickly, and at that point, they don’t want people learning on the job.)

Thankfully, the dynamics aren’t quite as crucial in advisory firms, but I can tell you from my experience, they are still very important. As in my case, when clients need a succeeding advisor, they need someone who can hit the ground running. Make sure that your designated successors are fully prepared.

3) Introduce your firm’s clients to your designated successors. As I said, relationships between financial advisors and their clients can go beyond the professional, so chemistry is important. It’s also important that clients are introduced to their advisor’s designated successor and that they approve of him or her. During the traumatic time following the loss of their advisor, clients will get comfort from working with something they know and like.

4) Last but most important — keep detailed records and review them with the clients. I can’t emphasize this enough. Gaps in your recordkeeping hurt people. I’ll leave it at that.

When the worst happens, it’s going to be tough enough on the successor advisor. Don’t make things worse by forcing them to fly blind and, very possibly, alienate clients.

Losing a senior (or any) member of your team is going to be traumatic; for you, for your partners and employees, and for your clients. Thoughtful planning can greatly reduce the stress on everyone involved and increase your chances of continuing to meet the needs of your clients and, therefore, retain them.

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