Succession Planning: What Happens When a Purchasing Advisor Dies?

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….

Are the Hawks Circling?

Let’s consider the following scenario. You have been a representative with your broker-dealer for the past 15 years, and when you look back on the time spent with them you have nothing but great things to say. The company has always tried to stay ahead of the curve; service levels have increased over time; the back office staff has always been friendly and responsive. The next thing you know, you see your broker-dealer show up in the headlines, and not in a positive way. Naturally, you start to wonder: Is this a hiccup? Will they get right back on their feet again tomorrow? Or will this news somehow impact them for the long term and possibly affect your business relationship?

We see these kinds of headlines often. A firm is rumored to be for sale. A company is laying people off after a sluggish quarter. A broker-dealer is cutting payouts as their projected net income shrinks. A firm is being fined by FINRA or a specific state for supervision issues. What happens next can almost be set on your watch: Your phone starts ringing and people start asking if you like your broker-dealer, and suggesting just how quickly you should bail out of your sinking ship.

We offer two pieces of advice if you face a situation like this. First, call your broker-dealer directly and open the lines of communication with its senior managers to discuss your concerns. Find out if the people that you have worked with for the past 15 years can offer insight into the situation, and perhaps give you a better explanation than what you have read. See if your fears and concerns can be allayed and your questions answered so that you know “the ship hasn’t hit an iceberg.” Second, if you contemplate making a broker-dealer change due to some negative news, consult with trusted industry colleagues for their knowledge and points of view, including representatives at your current broker-dealer, representatives at other broker-dealers, and local wholesalers/key account executives at product companies affiliated with your broker-dealer. The best advice, and often the most accurate news, usually comes from trusted colleagues.

Have you thought about this? We have….

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