Continuity Planning for Advisors - 9 Warning Signs your Continuity Plan is Doomed to Fail
Dear Advisors,
Continuity Plans may be required by the regulators, but there is no industry standard for how to do Continuity Planning successfully. As an exit coach to advisors, I’ve seen the chaos that ensues when a real Continuity Plan is not in place. Your life partner will be burdened with business decisions on top of dealing with your medical care or grieving for your passing. Clients will leave. Your heirs will not get the appropriate value for your business in a quick fire sale.
I don’t say this to scare you; I say this to EMPOWER you! As an advisor, you help your clients make plan A, B & C and encourage them to consider future scenarios. Now is the time to do the same for yourself and your advisory firm’s Continuity Plan, instead of facing detrimental consequences. If you’re interested in the steps to creating a Continuity Plan, check out one of our popular blogs on this topic from last year!
So, does your Continuity Plan include everything it needs to protect and provide for your clients, family, and advisory firm? In this blog, I describe 9 warning signs your Continuity Plan is incomplete if a triggering event happens. Be sure you read to the end, where I share about an advisor’s Continuity Plan that was triggered and the success they experienced by preparing in advance!
Warning Sign #1: Unsuitable Continuity Partner
A real Continuity Plan lists one (or sometimes several) Continuity Partner(s) to step in to lead the business and meet with clients if the plan is ever triggered. Choosing a Continuity Partner is the first step to getting the rest of the Continuity Plan in place. Failing to identify a Continuity Partner means your Continuity Plan wouldn’t work in real life.
If you have identified a Continuity Partner, touch base at least annually to see if the arrangement is still suitable. Ask yourself, “If I was hit by a bus today, is my Continuity Partner prepared to run my firm and make business decisions on my behalf?” If you answered no, it is time to find a new Continuity Partner.
Warning Sign #2: Not WRITTEN and ACCESSIBLE.
Ok, this may seem obvious, but you might be surprised to hear how many advisors I talk to who say they have a Continuity Plan, only to find out that they have simply THOUGHT about what should take place in an emergency. Having a plan in your head is NOT a Continuity Plan! A real Continuity Plan includes a buy/sell agreement in written form.
Warning Sign #3: Using a Generic Legal Template
I get asked to share Continuity Planning templates on a regular basis. I am always happy to pass on resources to help advisors. But when I share templates, they come with a disclosure: a template should never serve as a Continuity Plan. It can be a helpful guideline for conversation with an exit coach and your attorney, but a real Continuity Plan is NOT a fill-in-the blank cookie cutter project. Just as your advisory firm is unique, your Continuity Plan will be one of a kind.
Beware of templates and avoid exit coaching companies (who shall remain nameless for the purpose of this blog) who overly use templates for Continuity Planning! Advisors who have hired me to be their “continuity quarterback” have had great experiences working on their legal documents with Chris Stanley of Beach Street Legal and Jonah Toleno at Shustak Reynolds & Partners. Be sure your significant other and your Continuity Partner know where to find your Continuity Plan documents.
Warning Sign #4: Not a Signed Legal Document
A Continuity Plan isn’t a REAL Continuity Plan unless it is signed by all legal parties. Your life partner should also be included in the document signing. One of my clients wanted to fund her Continuity Plan with insurance and we had an excellent experience working with Peachie Thompson with Peach Insurance Services. One day, she shared a recent horror story about a Continuity Plan gone wrong. The spouse of the deceased firm owner tried to sue the Continuity Partner due to not getting her portion of the sale. The spouse lost the case. Why? The Continuity Plan was never signed! DON’T let that situation happen to your family and make sure all parties have signed the paperwork.
Warning Sign #5: Not Actionable
I cannot express to you that all of the legal work isn’t enough if your Continuity Plan isn’t operationally ACTIONABLE. A Continuity Plan isn’t just a legal buy/sell agreement. It also includes documented instructions on how to run your firm until you can return to work or as the business transitions to a new owner. How will your Continuity Partner access passwords to your account? How will employees get paid? How will clients be contacted after the triggering event? When I create a Continuity Plan with clients, customizing your own Hit-by-the-Bus Workflow is one of the important steps of the process. If you’re interested in this concept, our Hit-by-the-Bus Workflow Presentation may be a helpful resource.
Warning Sign #6: Isn’t Compliant
Compliance - the bane of our existence! If your Continuity Plan isn’t compliant with industry and legal regulations, it could cause more problems than not having one at all. Unfortunately, access to compliance software or automated compliance tracking will be insufficient if your Continuity Plan is ever triggered. I connect each of my Continuity Planning clients to compliance experts, like Kingston Hollman with Just Compliance, for example. Compliance consultants can ensure the plan is up to current compliance standards, and be available to deal with compliance issues if the plan is triggered.
Warning Sign #7: Doesn’t provide proper compensation
Will you continue to get a paycheck if you are hospitalized? Will your family get adequate value for the firm you have built if the business needs to be sold? A real Continuity Plan includes proper compensation for multiple scenarios if a triggering event occurs. When I work with advisors to create real Continuity Plans, we even go so far as to check if their disability insurance would pay out in a triggering event, and address other concerns like this.
Warning Sign #8: Doesn’t include both incapacitation and death scenarios
A real Continuity Plan should include detailed instructions for both scenarios of temporary incapacitation and death. What if you are in a coma for 6 months? When should your life partner/Continuity Partner start discussing the sale of the business? An immediate sale in the case of death vs. incapacitation where you may not be able to work for an extended amount of time is a very different situation with potential complexities. The good news is that your Continuity Plan can include flexible legal language so your trusted contact can make decisions based on how the scenario unfolds.
Warning Sign #9: Isn’t Updated Regularly
I’m sure by now you realize Continuity Planning comes with complexity. Your firm grows and shifts. Compliance requirements change. FinTech companies in your use will come and go. That is why it is integral to review and update your Continuity Plan regularly to ensure your plan will actually work if a triggering event occurs. This is why I schedule an annual update with all my clients who complete a Continuity Plan with Ellevate Advisors. An outdated Continuity Plan is failure waiting to happen.
I know real continuity plans exist because I’ve been involved in one. Early in my career, I was part of a team where an older advisor experienced a major health event and never came back to work. Fortunately, the team had prepared in advance and executed the plan with a 99% client retention rate! The incapacitated advisor was able to recover at home with his family and chose to take early retirement. I know how valuable this is, in terms of both finances and peace of mind.
Here’s my promise: if you get a real Continuity Plan in place, it will give you more confidence in the work you do and how you’re providing for your family. It will change your marketing and how you build trust with prospective and current clients. It will change the way you view your role in your business and eventually, your succession plan. It will fundamentally change how you feel about yourself, knowing you are doing your fiduciary duty and securing your legacy
Whether you are an advisor with an incomplete Continuity Plan or are just getting started, I am happy to help you on this journey. Don’t keep pushing this project out of sight and out of mind. The consequences aren’t worth it. I always offer a free consultation to answer questions and point advisors in the right direction because I am passionate about seeing you thrive the same way you are passionate about seeing your clients thrive. Schedule a quick Zoom call with me using this link.
Warm regards,
Brooklyn
At Ellevate Advisors, we believe that advisors deserve to retire too. What does that look like for you, your family, and your business? Let’s figure it out together! Get to know me on my bio here, or schedule your free consultation here.