Does Your Advisor Have a Succession Plan?

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Estate planning is not a task many look forward to with joy. It tends not to be viewed as a fun topic of conversation and probably wouldn’t top the list of party icebreakers to warm up the crowd. However, this task is necessary and must be confronted head on. Denial is not an option!

A key component of estate planning is a clearly communicated wealth succession strategy. A good succession plan provides clarity, transparency and helps to educate the next generation about how to responsibly manage the inheritance while continuing your legacy. The plan provides a roadmap for a seamless transition of assets according to your wishes. If you are working on a plan, that’s good; if you already have one, that’s great! It sounds like you have your house in order.

But what about your advisor? Have you ever asked the question: does my advisor have a succession plan for his/her business? That’s a very important question to get an answer to, as it affects you directly.

A surprising number of advisors fifty years of age or older don’t have a successor lined up or any sort of plan in place. Some say ‘when the time comes’ (which is when?) they will sell their clients to whoever will write the biggest cheque. That’s not a very comforting thought as you are being viewed as nothing more than a commodity to be sold to the highest bidder. That advisor doesn’t seem to care if the buyer is capable or qualified, the buyer just needs to be able to outbid everyone else. There are organizations that exist purely to facilitate this process of matching buyers and sellers based on price. At no point is the skill set of the potential buyer discussed or finding a ‘fit’ for the client base sought out. This is purely a dollars and cents transaction.

The other thing we have heard more often than you would think is an advisor saying, ‘I’m never going to retire.’ The advisor who says this thinks he/she is providing the client with peace of mind insinuating that they will be together forever and the client doesn’t have to worry about working with anyone else. Although the advisor’s intentions are good, the execution of that idea is not good.

Let’s walk this forward a few steps. Your advisor has a little grey hair right now and you feel comfortable because you know he/she has been around for a few decades and has experience to match. That experience is useful for providing a steady hand when the markets get frothy. The advisor has seen that scenario before and can provide perspective to say, ‘stay the course, have patience, this will pass’. Now fast forward another decade when your advisor is in their early to mid-seventies. Their family likes to travel, spend time out at the cottage and go to the grandkids’ hockey/ringette/baseball games and tournaments all over the place. How motivated is that person to continue to put in the hours required to provide the best service? And what about the education required to keep abreast of the changes that occur regularly in the industry so that they can continue to provide the best solutions for their clients? Mental sharpness also tends to decline with age.

And finally, let’s follow this through to its conclusion. Unless your advisor is blessed with divine intervention and has been granted immortality, he/she too will pass. That is a certainty and inevitability. We just don’t know how or when that will happen. And at that point you are left holding the bag. You are put in a position where you have to scramble to find a new advisor at an inopportune time. This is not a plan. This is akin to driving in a foreign city with no directions, no map, and a broken gas gauge. Punch the accelerator and go in random twists and turns until you run out of gas. And that’s where you are forced to stop. You don’t control where you end up, how you get there or how long it takes. Imagine if you approached your own retirement in the same way. Without a plan, you would spend your money haphazardly until it ran out. To some that would seem gut-wrenching. But if your advisor doesn’t have an
exit strategy, isn’t it the same thing?

A more caring and responsible approach would be one where the advisor carefully searches out a successor who holds the same high standards towards client service. An advisor knows many of his/her peers and is capable of assessing whether or not an individual has the experience, education and skill set required to continue to provide the clients with top-notch advice. Trust is a critical component of an advisor-client relationship, and if you know your advisor took the time to vet the person who will be taking over your account management, you will more likely feel confident and comfortable with the change. The successor should mesh well with the style of the advisor and be a good fit for the client base overall. This will provide a seamless transition without disrupting the execution of your financial plan that you and your advisor have worked so hard on to create and implement.

So the next time you meet with your advisor, ask the question: ‘What is your succession strategy, and how do I fit into this plan?’ If the advisor stumbles over the answer (or doesn’t have one), it’s time to take control of the reins and find an advisor who isn’t leaving things to chance. Knowing your advisor has a well thought-out and organized succession plan will provide you the peace of mind you deserve so you can focus on enjoying your life!

Exponent Investment Management