Continuity Planning for Advisors in 4 Simple Steps
Dear Advisors,
They say there are two sure things in life: death and taxes. All too often I encounter an, “It won’t happen to me,” mentality. It’s easy to dismiss the inevitability of death in the moment, but that isn’t a realistic or productive way to work. Also, death doesn’t make appointments. Neither does disability. I call this a hit-by-the-bus scenario, and it can happen to you.
Getting a written plan in place in case you can no longer work due to an emergency or suddenly passing away is not only responsible, but it’s also your fiduciary duty. If you were walking down the street and got hit by a double-decker, what would happen to your family, business, and clients? I have seen firsthand the chaos that ensues during an emergency exit, and it doesn’t have to go that way.
As an Exit Coach exclusively to advisors, I’ve taken a deep dive into the steps advisors need to take to prepare for a hit-by-the-bus scenario. After talking with compliance experts, custodial paperwork gurus, and attorneys, I’ve compiled the following steps to getting a continuity plan in place.
Step 1: Match With a Continuity Partner
Not having a continuity partner is the biggest hurdle to starting a continuity plan, so if you feel stumped by this, you’re not alone! We put together the following list of criteria to help you screen potential continuity partners and find the best fit. There are a lot of factors to consider, and many advisors need to talk this through with me to help the plan coalesce.
Decide your fee structure: fee-only, commissions, charge based on AUM, net worth, retainer, hourly, etc.
Are you going to work in person or virtually? If you plan to work in person, you’ll need to be clear about the location.
Work out your service model: investment management, financial planning, tax preparation, business consulting, family office, etc.
Have a solid investment philosophy: stock-picking, DFA & Vanguard, ESG/BRI, etc.
Know what size business you want. You may prefer a larger firm who could absorb your clients, or make a plan with a small firm to handle the influx.
Specify your niche.
Decide on a custodian. It isn’t necessary to choose a custodian at the same time as your continuity partner, but it’s not a bad idea either.
A very important question I often get is if one’s spouse needs to meet their continuity partner. Your life partner will need to sign your legal continuity plan, so they need to be at least familiar with your continuity partner and the structure of the continuity plan. When I connected with my continuity partner, we went on a double date to get to know each other’s spouses so that everyone would be comfortable working together if my continuity plan is ever triggered.
Step 2: Complete Your Legal Continuity Plan
Whenever you work with clients and they need their estate plan updated, you may give them a list of things to discuss and decide before meeting with the estate planning attorney. That’s exactly what I do when working with advisors on their continuity plans. I have several attorneys who have done great work for my clients. But before making introductions to attorneys, I review the following legal and financial factors with them:
Who is your continuity partner? They should be part of this discussion.
Who is your designated decision-maker? This is similar to POA and is often one’s spouse.
Who is the guardian of the business? I serve in this capacity for my clients because I helped them design their continuity plan and can offer support during the transition as needed.
If you are incapacitated, how long should your continuity partner service your clients until they can purchase your book of business?
How will your continuity partner be compensated while they service your clients before they buy your business?
If your continuity partner buys your business, what happens to your staff?
How is your business valued at the time the continuity plan is triggered? This is typically a formula or a valuation done at that time.
How is the purchase of the business funded? E.g. down payment versus ongoing payments, funding through a lender or insurance if necessary, a look-back provision, etc.
A question I often get is, “At what stage should I have a legal continuity plan in place for my firm?” If you’ve just launched your firm, regulations likely require that you have someone listed in your operating agreement. Once you’re about three years into the business or have twenty or more clients, it’s time to make it official with a legal, separate continuity plan. There is much I can’t include here, so please reach out if you need to talk through it and get introductions to attorneys.
Step 3: Customize Your Hit-By-The-Bus Workflow
Now it’s time to think about what actually happens if your continuity plan is ever triggered. While working with my clients, this is where I review the hit-by-the-bus workflow template in detail. The workflow provides a list of actions for your continuity partner (or spouse) to follow in an emergency situation.
Securely share usernames and passwords with your continuity partner so they can log into the necessary software to service clients.
Confirm that company bills will be paid, including setting up auto-pay, and applying for a business credit card if needed.
Notify all clients with a personal letter within one week of the triggering event.
Initiate SEC registration if needed or notice-file in states where the incapacitated advisor has clients over the de minimus exemption.
Initiate custodial registration (if the custodian is different from the continuity partner) and transition of accounts.
Another familiar question is, “Once I have my legal Continuity Plan, what else is there to worry about?” There are over fifteen steps in the workflow, so we can’t review them all here. That’s why advisors hire me to help them get a customized workflow in place. Also, you may have your legal, separate continuity plan document on file, but did you remember to go back and update the section of your operating agreement to make sure it doesn’t contradict the new plan? You may need to review your personal estate plan as well. These are the kinds of things I help advisors double-check when we work on their continuity plan together.
Step 4: Communicating Your Continuity Plan
What do you say when a client asks about your continuity plan? Does your team know what to expect if something were to happen to you? What can you do now to increase the client retention rate during a triggering event? These are all examples of templates you need to have drafted starting now. When I work with advisors on their continuity plan, our last call is dedicated to customizing the following templates:
Brief answer for when clients ask about your continuity plan
Template letter or email to send to clients announcing your updated continuity plan and what they need to know
Template event invitations depending on how you want to introduce your continuity plan to your clients
Brief staff announcements with what they need to know about your continuity plan
Triggering event contact list of the personal and professional contacts who need to be notified if your continuity plan is ever triggered, and the information they would need
Triggering event letter template in your own words to be sent to clients if your continuity plan is ever triggered
I’ve been asked, “Should I introduce my continuity partner to my clients?” It depends. Some advisors may use this as an opportunity to host a client event where clients can meet the continuity partner. Other advisors choose to introduce the continuity partner only to their top five to ten clients. At minimum, telling clients that you have a plan in place, either via email, letter, or during a meeting, is a huge way to build trust.
For fee-only advisors, I volunteer to lead a NAPFA group to work through these exercises together! This helps fee-only advisors match with a continuity partner based on the criteria we discussed above. Then, we get together as a group once a month to go over FAQs and help you get a realistic, actionable plan in place. Let me know if you’re interested in joining our group or completing the survey by sending me an email at Brooklyn@EllevateAdvisors.com. Whether you’re creating or updating your continuity plan, this group is the perfect place for you to get answers and make progress.
Having your Continuity Plan in place today is critical to securing the future of your family and your financial advisory firm. If you have unique exit planning needs, I’d be happy to chat about it with you. You can schedule a quick call with me here.
Warm regards,
Brooklyn
P.S. 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! Check out our services here, get to know me on my bio here, or schedule your free consultation here.