Today’s advisors manage complicated portfolios and navigate an increasingly complex financial system for their clients. But what happens when an advisor is incapacitated or dies suddenly? How will clients continue to be served without disruption?

Death or incapacitation aside, many financial advisors are approaching retirement – one in 10 is over 60 years of age – and yet few have created succession plans. Financial planners ask clients to plan for retirement, but struggle to do the same for themselves.

In the United States, two agencies are tackling this issue. The SEC’s Division of Investment Management is currently developing rules for registered investment advisors that would make succession planning mandatory. The North American Securities Administrators Association (NASAA) recently adopted a model for states that choose to regulate succession planning for advisors.

In Canada, we have no guidance on this issue, but we should. If Canadian rulemakers take a cue from the U.S., we may see the NASAA model adopted north of the border. However, there are so many benefits to putting a succession plan in place that advisors shouldn’t wait until it becomes mandatory.

1. Retaining clients

Clients value stability and want to know that they will continue to be served without disruption. You don’t want to be caught without an answer when a client asks: “Who will be my advisor if you leave?” Once a plan is in place, an advisor can stop worrying about the future and focus on building his or her practice by providing excellent service to clients. Further, advisors with succession plans have more control over the transition process when selling to a new owner.

2. Providing for family

If an advisor dies unexpectedly, a succession plan will ensure that their estate and family are secure. The plan should identify to whom the practice’s ownership will be transferred — either internally or to a predetermined buyer — to prevent loss of equity in the practice.

3. Securing value

A succession plan helps map out the value of the practice, making it more attractive to potential buyers. Plans should include projected revenue growth, client demographics, employee history and turnover rates, quality management systems and the practice’s operating model. If a plan isn’t in place, advisors risk devaluing their businesses.

4. Securing retirement

An advisor’s practice is likely his or her most valuable asset. Consequently, many advisors depend upon a profitable sale to fund retirement. Having a succession plan will help ensure advisors enjoy a long and financially secure retirement.

Christopher Ambridge, CFA is the President and Chief Investment Officer of Provisus Wealth Management. Chris has nearly 30 years of experience in the investment industry and works with independent financial advisors across the country.

Originally published on
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