If You Suddenly Die, Your Clients Should Be Fine, Succession Plan or Not

Advisors may not need a full-fledged succession plan like everyone says. A simpler contingency plan can suffice.

(Illustration by RIA Intel)

(Illustration by RIA Intel)

So what happens to your clients if you’re creamed by the proverbial crosstown bus?

A surprisingly high number of RIAs and other retail advisors don’t have much of an answer to that question. In fact, this year, in Schwab’s annual benchmarking survey of strategic initiatives, succession planning ranked, ahem, dead last.

While 41% of advisors say they have some form of plan in place that considers the transition of the business when they are no longer working full time, only 27% report having a formally documented plan in place, according to a report of the Financial Planning Association. And smaller advisors are less likely to do this kind of planning then their larger brethren.

“The smaller advisor, whether it’s someone working in a wirehouse or an independent rep, usually don’t want to talk about it because they don’t have a plan in place,” says John Furey, a founder and principal with Advisor Growth Strategies, a consulting firm to advisors. “The way they see it is that there is no professional at the firm to take your client—so there is little point in talking about it.’’

Needless to say, it’s hard to find advisors without plans who are willing to discuss this topic on the record. “Succession is the third rail of the industry,” adds Gabriel Garcia, the head of business management & strategy with E*Trade Advisor Services. “No one wants to consider their own demise.”

But advisors without ambitious succession plans – like the kind touted by advisory-firm consultants and discussed in the trade press – needn’t fret too much.

As several interviews with financial consultants make clear, the main benefit of these plans is to help large advisory firms with multiple partners retain business should an individual advisor die or become too ill to work.

That’s certainly a sensible approach to take for any business that views itself as an ongoing concern. But for small advisors who aren’t as concerned about business continuity, a contingency plan – with a basic set of instructions suggesting a recommended advisor to turn to in event of an advisor’s demise -- might suffice instead of an elaborate succession plan. It also certainly beats taking no steps to plan for succession. In the event that an advisor runs a small shop with one or two advisors, that recommended advisor could end up being a trusted professional from another firm.

Even major consultants who help advisors with a full range of sophisticated successional planning are willing to concede that succession plans aren’t a requirement and that a simpler set of instructions could be a reasonable middle ground.

“A contingency plan is a very basic safety net, and at a minimum, this should be in place with a structure and implementation plan that’s documented,” says Garcia. But he adds that “a more comprehensive succession plan can help advisors build an enduring business over the long term.”

Of course, many advisors, especially those without heirs interested in continuing in the business, have no intention of building an enduring business. And their clients aren’t the least bit concerned about such matters. They simply want good financial advice and the freedom to turn to whomever they feel like when and if their advisor can longer serve them.

“If [an advisor] gets hit by the crosstown bus, a client can go to another firm,” says Brian Hamburger, CEO of MarketCounsel, an Englewood, N.J.-based advisor consultancy. “It’s not as big an issue for clients as the regulators may think it is.”

Still, that’s no excuse for not at least raising the issue of succession with clients. Too many advisors are still burying their heads in the sand on this issue.

“We hear horror stories of a small firm advisor dying and the client is left in lurch,” says Furey. “The client might call the custodian on the account and say, ‘What do I do.’ There will be a period of uncertainty and anxiety for the client.”

Brian Hamburger MarketCounsel Gabriel Garcia John Furey Financial Planning Association