Don’t Wait to have a Written Continuity Plan
DEAR ADVISORS,
What actually happens when an advisor doesn’t have a written continuity plan in place? We can plan for a succession plan, but we can’t control a continuity situation. Here’s a real life story.
Last week, I hopped on a weekly call with one of my clients, whom we’ll name Cassandra for the sake of this story. Cassandra explained that just that morning, she received a call from a friend’s husband. We’ll call my client’s friend Jenny and her husband Jim. Jim was driving Jenny to the hospital because Jenny had a brain aneurysm. A ruptured brain aneurysm is fatal in about 50% of cases. Of those who survive, about 66% suffer some permanent neurological deficit. Unfortunately, aneurysms often have no symptoms until they rupture, and that was the case for Jenny, who is also a financial advisor.
Jim is an attorney and asked if Cassandra could step in to service the clients for a few days, or a few weeks, depending on how things went at the hospital. Jenny is a solo advisor with no support staff, a full book of business, and no continuity plan in place. Cassandra felt it was important to help during this crisis, so she signed the custodian’s paperwork to provide her with the ability to trade in Jenny’s client accounts. However, there is nothing in place to protect Cassandra or Jenny from the liability of each others’ actions if a trade error occurs or a client complaint arises. And we don’t know if or when Jenny will return from the hospital.
There’s not much Cassandra can do about signing a Continuity Plan with Jenny while she’s incapacitated. This is why it is absolutely crucial that every advisory firm owner has a written Continuity Plan be in place. It should include several important features:
Outcomes - A good continuity plan will give instructions about what happens during a short period of incapacity, a long period of incapacity, or an unexpected death.
Valuation - A good continuity plan will state the most recent valuation of the incapacitated advisor’s firm, and give the non-incapacitated advisor the first right to purchase, or instructions on assisting with the sale to a third party. The valuation should be updated annually.
Deal Terms - A good continuity plan will state the terms by which the non-incapacitated advisor would purchase the firm, including the down payment amount, and the timing and amounts of payments for the balance.
Protection - A good continuity plan protects both the incapacitated advisor and the non-incapacitated advisor from the liability of each other’s actions during any of the outcomes.
Notifying Clients - A good continuity plan will state whether positive or negative consent is in place to service clients and instructions on whether client agreements need to be re-signed with the new advisor.
Every year, a financial advisor you know is going to die unexpectedly without a succession plan or a financial plan for their family. Don’t let that advisor be you. If you’re looking for a template for a good continuity plan, feel free to contact us at Ellevate Advisors, or work with Beach Street Legal, which is a law firm for the investment advisory and financial planning community. It’s not hard to get a continuity plan in place today and it’s one step closer to securing the future of your family and your financial advisory firm.
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! Click here to schedule an initial phone call with our team today or get to know me on my bio here!