As a financial advisor, you assist clients in planning for their futures. But have you planned for the future of your own practice? What happens to your business if tomorrow you are permanently disabled or die? Where do your accounts go? Will your spouse or other beneficiaries receive economic benefit from your practice?
Consider these questions:
Q: What happens if a branch owner dies or becomes disabled without a written succession plan on file?
A: Without a valid written succession plan, the broker-dealer may take over the branch owner’s accounts, block other financial advisors from soliciting those clients for a set period of time (e.g., 60 days), and the branch may be closed. In some cases and depending on the business agreement the branch owner has with the firm, the branch owner’s beneficiary may only receive any earned but unpaid revenues, less any outstanding expenses.
Q: What happens if a financial advisor in a branch dies or becomes disabled without a written succession plan on file?
A: Depending on the broker-dealer, if the financial advisor does not have a valid written succession plan, the deceased or disabled advisor licensure is terminated and his or her client accounts could be transferred to the branch owner or to the broker-dealer if the owner requests. In some cases, the branch owner may, at his/her discretion, make a one-time payment or execute a fixed note with payment to the advisor’s beneficiaries but may be under no obligation to make such a payment, and the payment cannot be tied to or related to commissions or fees that are earned. The reason it is at discretion is that there is no contractual obligation to make any payment, and there cannot be sharing of revenue pursuant to FINRA rule 2040.
Q: Can I designate an assistant or branch professional as my successor?
A: Some branch owners name a licensed assistant or branch professional as their catastrophic successor. While this may seem better than no plan, it is better to search for a producing financial advisor to minimize client attrition in coordination with retaining the branch professional. Depending on the firm, any licensed branch professional must meet the experience and qualification standards that the broker-dealer applies for approving any individuals for the role of branch owner and manager – being named a successor does not automatically qualify someone to become branch owner.
Q: Why do I need a succession plan if I don’t plan to retire from the business?
A: Even if you don’t plan to retire, in order to protect your business, clients and family, you need a written business continuity agreement that addresses death and/or disability, permanent or otherwise.