It was a crisp, clear day in Sedona, Arizona. As an advisor, I was attending my broker-dealer’s 2007 educational conference and had just finished up a session. I was catching up with my business partner in the foyer when the call came in. A long-time friend and colleague of my partner’s had passed away — a financial advisor for over 45 years.
He was a model of perfect health. He completed over 80 marathons and was an accomplished triathlete. But even someone in such great shape wasn’t immune from life’s inevitability. He lived a rich and fulfilling 75 years, but now had passed without fully implementing a continuity plan.
Although he had the beginnings of a succession plan in place with his former partner, very few elements of it had been implemented and communicated to his clients. So when he passed away, there was obvious client concern about “what was next” and “who is going to work with me now.” Moreover, the advisor’s buy-sell partner was 75 as well. This led to the inevitable questions about what happens when the surviving partner gets ill, among other concerns.
Although the succession plan had not been formalized, I was ready to take the lead role as the new advisor. Over the course of several months I learned a lot — trial by fire as some might say. Here are a few things I learned in that experience:

  • Investment Philosophy: I took over a $30M practice that was almost exclusively actively managed funds and portfolios. Although there was some consistency with my belief in low costs, strategic asset allocation and value investing, I found myself defending recommendations that I didn’t truly believe in. Clients felt this trepidation in my lack of conviction during the financial crisis of 2008. Some clients began to lose confidence in the previous advisor’s strategies. Although attrition was stemmed, it still led to some very uncomfortable conversations.

    Recommendation: Choose a firm and advisor with an investment approach that is consistent with what you’ve recommended to your clients.

  • Financial Philosophy: Beyond investments, the prior advisor used ‘insured’ products and features to generate income. My approach was more holistic and based on a bucket methodology. Again, I found myself in a position to defend a financial strategy that wasn’t consistent with my planning approach. Moreover, I again was in a position where I had to defend a philosophy that I wasn’t entirely comfortable with, a feeling which was palpable in my review meetings.

    Recommendation: Select a continuity advisor who shares a similar approach to managing a client’s balance sheet and plan much like you would their investment philosophy.

  • Communicate Early & Often: I was obviously introduced to clients after the advisor’s death. Although the clients were comforted that someone had stepped in, it would have been more impactful if I was brought into meetings well before his death. Continuity is more effective if a partner is identified well in advance and brought into client reviews or rediscovery meetings, if possible. Context and relationships are so meaningful in our business, way beyond just numbers on a balance sheet.

    Recommendation: Introduce your continuity partner to your clients well in advance — both in your newsletter as well as at educational events. Advisors that I’ve seen do this build a tremendous amount of goodwill with their clients in the process.

With the looming SEC and forthcoming state-level requirements for more documented and clear continuity agreements, there’s never been a more important time to build or re-examine your continuity, succession and communications plan for you and your practice. They should be revisited periodically with your team and continuity partner. Importantly, your family should also understand what will happen to your practice when the inevitability of life’s end is upon us.
LWI Financial Inc. (“Loring Ward”) is not an insurance, legal or tax advisor. The information herein is general in nature and should not be considered insurance, legal or tax advice. Please consult with an insurance, legal or tax professional for additional information.