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Adviser Succession Plans

Among the many compliance concerns facing investment advisers, one that is getting much more attention these days is how one addresses what happens to the business and especially its clients when the adviser is no longer there. Whether an adviser is retiring, becomes disabled, dies or is required to leave the industry, there is a concern about what happens to the clients and the continuity of advice available to them. Regulators are looking more closely to see what advisers have in place and, at a minimum, are requiring some clear statement in that regard.

Although akin to the idea of having a disaster recovery plan, the requirement of a succession plan is somewhat different. A business interrupting disaster may or may not occur on your watch but it is certain that at some point you will no longer be active in the business for whatever reason. The well intentioned regulators want to be sure that clients are not adversely affected by these events and want you to be prepared as well.

One of the biggest concerns will be who – individually or as a firm – has been chosen to step in for you when you are out of the picture. Since you have some control over that today, while you are active in the business, it makes sense to get that due diligence done and a back-up in place. In this fashion you will be able to know that your clients will likely be served in the way that you prefer and will no doubt provide information to help your successor understand those clients and their needs/preferences.

Another big concern which is not really the point of the regulators is how you will protect yourself or your survivors financially when you leave the business. Your business has value and whoever takes it over will have the benefit of your effort and knowledge. Understanding that value and negotiating an agreement that protects you as well as your successor is critical to the plan working and is quite apart from the obvious need to protect the clients. You may want legal and/or tax advice on any such agreement but it is important for you to make sure there is an agreement that makes sense. Otherwise the succession plan will not have much value to you.

Think about it now and act sooner than later because, as you already advise your clients, being prepared for the future is essential with or without the accompanying regulatory requirements. 

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