When you own a financial planning business, do your ownership rights extend to your beneficiaries? The question comes up commonly these days. Some succession plans aren’t set up until a representative becomes terminally ill, and are then done hastily, often using free “boilerplate” documents. The rep usually decides to sell their practice to another advisor with payments going to them or their named beneficiary. We see succession planning scenarios like this all the time at our broker-dealer. What happens, though, if the advisor who purchased the practice unexpectedly passes away?
Does the beneficiary have the right to re-sell the practice to another advisor? Is the broker-dealer allowed to contact affected clients to inform them that their advisor passed away and let them know who will be servicing their account going forward? Believe it or not, we have been asked these very questions three times in the past year. The conversation always begins with the question: “Can they do that?”
From the broker-dealer’s perspective, yes, it is the b-d’s responsibility to alert a client if something has changed with how their account is being handled. Some would argue that it is the b-d’s responsibility to alert the client that the advisor who was managing their account is no longer acting in that capacity, and that the b-d itself must implement a plan to ensure the client’s needs are being met. So yes, the broker-dealer can, and should, take action.
When a beneficiary contacts us with questions, as a broker-dealer, we first advise them to see if language exists in the original selling agreement that relates to their current situation. Beneficiaries have no residual ownership rights to the clients as assets, and would not have the right to re-sell the book of business anyway because, by definition, beneficiaries are not securities-registered. They may, however, retain some rights, if specified in the selling agreement. If that agreement was prepared by a securities attorney, their rights should be clearly defined.
The bottom-line lesson: “Boilerplate” selling agreements and succession planning “freebies” found on the internet may save a representative time and money in legal expenses, but could potentially cost a beneficiary significant money down the road.
Have you thought about this? We have….