Succession planning: the tool every advisor needs

Financial advisors make sure their clients realize that the sooner they start planning for retirement, the better. It’s good advice.

For the advisor, it’s also good advice to plan for what happens to the business and its clients after he or she retires or otherwise leaves the business—the sooner the better. Having a plan in place is a critical step in securing a successful future for the business, family members, clients and the advisor.

The succession planning team—led by Sr. Vice President John Schu, and includes Succession Planning Director Frank Roccograndi, Branch Development Analyst Jenson Jose and Business Development Director Kristin Bonno—is ready to lend a hand to any advisor looking for assistance.

Business continuity plan vs. succession plan

When it comes to planning for the future of a business, there are two primary considerations for advisors—the business continuity plan and the succession plan.

Every advisor needs a business continuity plan to identify someone who agrees to assume responsibility for clients and buy the practice in the event of an advisor’s disability, death or other unplanned event. Regardless of an advisor’s age, a continuity plan helps protect the business because it addresses what an advisor wants to happen to the practice if he or she is no longer able to run it.

A succession plan involves identifying and naming a successor who will work closely with the advisor, learn the business and eventually buy it when the advisor retires. It addresses how the advisor will ease into retirement and helps maximize the value of the practice. Grooming the right successor could take several years, which is why it is wise to begin early.

“Owning a small business involves not only protecting the value of the business for the advisor and his or her family but also helping to ensure that employees and clients are taken care of if an unfortunate event occurs,” said Frank Roccograndi. “Part of thinking like a small business owner is planning for what will happen to the business once the advisor can no longer run it. Unfortunately, the reality is that most are unprepared.”

In a recent survey conducted by Lincoln Investment, 75% of financial advisors admitted that they do not have a written business continuity plan in place.

Frank has always worked with succession and continuity planning, but last year, it became his sole responsibility to help advisors understand the importance of having a written plan in place and to help coach and guide advisors through the process. He looks to grow his succession planning team to work closely with advisors, provide consultation services to help them assess their individual situation and offer guidance and support in creating plans.

Many advisors assume Lincoln Investment will take care of their business if something happens to them, ensuring their spouse or heirs will receive compensation from the sale of the business when the clients are assigned to another financial advisor. In fact, 46% of the survey respondents incorrectly believe their book will be sold for them upon their death.

“That is not necessarily the case,” said Frank. “As a financial advisor at Lincoln Investment, you are an independent business owner and your practice is not ours to sell. Without a continuity plan, if a catastrophic event were to occur, commissions stop and we will be limited to only assisting your spouse in searching for potential buyers.”

A grieving spouse who is dealing with the loss of a husband or wife isn’t emotionally prepared to deal with the sale of a practice, negotiate a fair price or quickly find a buyer. This often results in a distressed sale for a price far less than could have been realized with advanced planning. Today, we are required to assign a new advisor to a fee-based account within 10 days or refund fees.

“Can a grieving spouse find a buyer and negotiate a fair price in 10 days?” Frank asks. “The reality is a practice without a continuity plan has a greatly diminished value.”

A reason for resistance

Business continuity and succession planning is an industrywide problem, and less than 30 percent of advisors have a succession plan or a business continuity plan in place. Considering the average advisor is a 58-year-old male, it’s a risky proposition. Advisors put off creating a plan for a variety of reasons. The survey indicated that while 50% of respondents stated they know planning is important, they just haven’t gotten around to doing it.”

“Lincoln wants to help,” said Frank. “We have a lot of resources available on our Business Development Resources portal available on AdvisorLinc and can lead any advisor through the process.”

While Lincoln can provide valuable resources, the first thing an advisor should do is to talk with his or her branch manager about options that may be available.

According to Kristin Bonno, “It often takes a triggering event to move the advisor forward because retirement may seem far off, and no one likes to think about his or her demise”

In many cases, a triggering event could be a health scare, a spouse who decides it is time for the advisor to retire, or a client who asks what happens to his or her investments if something happens to the advisor.

“Advisors will encourage their clients to start saving early, but they may be reluctant to create a plan for themselves,” she said. “As the old adage says, it’s the cobblers’ kids that don’t have shoes.”

For more information on business continuity planning and succession planning, visit the Business Development Resource portal on AdvisorLinc.

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