Just when you thought there wasn’t one more rule that the SEC could impose on advisory firms, here comes another. However, this one has real merit. Does it really require a new rule? I believe not; to do so, to me, is much too “Big Brother-Big Government.” But does it make good business sense for advisors? Yes.
Consider the endless events that could derail your firm, the most palatable being retirement or old age, the most terrifying being death, disability or incapacity. Last month, SEC Chairwoman Mary Jo White shocked the investment advisor industry and caused firms to consider succession planning for the first time since Hurricane Sandy in 2012. This time the focus was more on succession planning from owner to owner, instead of on business continuity in the event of a natural disaster.
Speaking before The New York Times’ DealBook Opportunities for Tomorrow Conference, White deemed “when an investment advisor is no longer able to serve its clients” a key area of focus for the SEC in 2015. Specifically, she cited the need for succession planning “during an advisor’s dissolution or following the departure of key personnel.”
Although White believes this principle arises from the fiduciary duty advisors owe to their clients, Stark & Stark believes that succession planning is important for investment advisors and their owners for many business reasons. The most important reason for advisors to implement succession plans, other than because White is making it a priority, is because it will allow the firm’s principles to realize value, either for themselves or for their loved ones. This is especially true for smaller investment advisors with a single member or single shareholder, although the issues are equally important for all owners.