Advisors Should Eat Their Own Cooking — Are You Prepared For A Catastrophic Event With Your Business?

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When financial services firms and their advisors talk about succession planning, they often present a very buttoned-up scenario. An advisor builds a book of business over the course of their career, ages gracefully, and bequeaths their book of business to an eager, young advisor. This; however, is very rarely the case.

First and foremost, financial advisors — for all of the planning they do for their clients — rarely plan to the same extent for themselves. Secondly, there tends to be a big gap between when the advisor envisions retiring and when they actually do. It’s in that gap where much can take place that impact’s an advisor, their business, and their customers.

To understand the ramifications of this “gap” period, it is important to also understand this period of time in an advisor’s life. They have gotten older, worked long hours, and may be in a position where their health is fading. They may be confronted with an illness that prevents them from continuing to work at the pace that they have previously. They may even pass away. All of these examples refer to scenarios that are catastrophic in nature to both the advisor and their business and must be accounted for in any discussion of succession planning .

I think firms are so focused on when and/or if an advisor is retiring that they are missing out on a huge opportunity right in front of them surrounding catastrophic planning.  Catastrophic planning is best described as when an advisor has pre-selected another advisor, practice, or business to take over their book should some type of catastrophic event takes place that would prevent them from continuing to run their practice.  

It is safe to say that catastrophic planning falls under the “it’s never going to happen to me” theory in the minds of most advisors.  What these advisors fail to recognize; though, is it could very well happen to them and that their clients are very much thinking about what will happen to their account if it does. If you’re that advisor, who feels close yet far from retirement and have not yet put a plan for succession into place, you need to have a good answer for your clients, your family, and yourself if confronted with the worst-case scenario of a catastrophic event.

Setting up a pre-defined catastrophic event successor is something every advisor should do and articulate to their clients. Bear in mind, catastrophic planning is not a quick-fix process and the appropriate successor for an advisor should only be named after thoughtful and serious due diligence. In searching for a successor, advisors need to make sure the individual they pick aligns with the philosophical and business practicalities they themselves already have in place. Additionally, it is important to evaluate a successor’s resources such as support staff, technology capabilities, and client support programs. The last thing you would want is to hastily hand over your hard-won business under the guise of “planning” only to see it fall apart on the watch of an ill-prepared successor.

On the flip-side, if  you’re a firm or advisor looking to grow your business, and thinking long-term, becoming the catastrophic event solution for one or more advisors can be a great way to build your business. In this case, although you’re not asking the advisor to merge or sell their practice now, you are getting your proverbial foot in the door and will have a real opportunity to show a potential seller how good you and your practice really are for when the time comes for them to retire. Keep in mind as you go through this process that you’re going to have to define your value proposition, establish you are a fit for the advisor’s clients, and make sure your investment style is in alignment. It is only then that succession will really work to the benefit of you, the former advisor, and their client’s.  

Let me be clear, I’m not advocating an ambulance chasing strategy for advisors looking to grow their practices. The acquisition part of catastrophic planning is, in fact, the end result of proper planning by both the selling advisor and the acquiring advisor.

Here is some food for thought I would like to leave you with on the topic of catastrophic planning. As an advisor you have inevitably taken a client through a holistic financial planning strategy, discussing the ramifications of various catastrophic events if they were to occur in your client’s lives. This discussion most certainly included the financial planning necessary so that your client’s loved ones are not severely impacted if those negative events were to happen. This is the same catastrophic planning I’m suggesting here for every advisor who cares both about their families and their clients. You owe it to yourself and it is something you seriously need to consider well before what you think is inevitable actually occurs.

Frank LaRosa
Senior Business and Transition Consultant
ELITE Consulting Partners

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