Your spouse's role in your succession plan

You've thought about your clients and staff, what about your family?

May 9, 2013 @ 12:01 am

By Kirk Hulett

In doing some competitive analysis of succession-planning services from independent broker-dealers, I came across an interesting “how to” article. One of the last items on the list, right above sharing the succession plan with your employees, was (and I'll paraphrase here to protect the author) that advisers should inform their spouse of their decisions for selling the business.

Not discuss, not share, not involve — “inform.” Done deal. As in, “honey, don't worry. I'm informing you that Bill will take over the practice when I retire, or sooner, if I die.”

In my head, several of the adviser spouses I know threw large, breakable objects in response to that piece of information. Rightfully so. If you're married, your succession plan begins and ends with your spouse. It begins with how your spouse, and your children, would receive compensation from your practice if you die, and ends with, “What will we do when I sell the practice and retire?”

Here are a few examples of poorly planned succession ideas that didn't involve the spouse, and what can be learned from them.

Case No. 1: Thinking ahead — way ahead

An advisor in Michigan heeded the call for advisers to practice what they preach by creating a continuity plan (how to keep the practice going if he died or became incapacitated) and a succession plan (selling his business to fund his retirement). He did his homework, found a continuity and succession partner, and prepared the agreements. Then he “informed” his wife of his plan — who had a question. How would the plan work if he died and their 7-year-old son grew up and wanted to run the business. Had the adviser involved his wife from the beginning, he might have avoided that emotionally charged question. Instead, he had to throw out his immediate continuity plan and create a longer-term succession plan that included the possibility his son might join the business someday.

Lessons learned:

1. What's obvious to you from a business perspective may not be obvious to your spouse.

2. Understand your spouse's emotional ties to your business and his or her vision of the future, with and without you, before you start talking to other advisers about succession.

Case No. 2: Out of the comfort zone

An adviser in California had a brother also in the business, but with his own separate practice. It seemed logical for them to name each other as successor. When our adviser presented the plan to his wife, she became upset. She disliked her brother-in-law and the idea of asking him for money from the business if her husband died. Had our adviser known his wife's feeling sooner, the purchase of his practice by his brother could have been funded with a life insurance policy so the wife would be paid as beneficiary. Or the brother could serve as guardian until the practice is sold, or the adviser could find another continuity partner altogether.

Lessons learned:

1. Your spouse needs to be comfortable with your successor and any other people involved in the succession or continuity plan.

2. Knowing your spouse is uncomfortable with your succession idea beforehand can help you avoid awkward conversations, such as telling your brother that your wife doesn't trust him.

Case No. 3: Getting to know you

Members of one of our adviser study groups decided in late 2011 to commit themselves to creating their continuity and succession plans in 2012. One adviser from Florida met three other group members who had a partnership in a nearby city. The four of them got to know each other better by participating in the study group. The solo adviser's wife accompanied him on the trip and got to know the trio, as well.

When he and the partners finalized a business continuity agreement and adjustable promissory note to pay for the business when the agreement was executed, his wife fully supported the plan.

This adviser understood from the beginning the importance of involving his spouse. He had purchased a practice in 2007 from another adviser after she received a diagnosis of terminal cancer. She died within a year of the transition, knowing that her husband and clients would be taken care of.

Lessons learned:

1. Your spouse will be greatly affected by the sale of your practice, whether as part of a succession plan leading to your retirement or as a contingency following your death or impairment.

2. Creating an effective succession plan starts with a candid conversation about the future, and how the sale of your business affects those plans.

Advisers often start with the succession plan — the long-term, “when I'm ready to retire” plan — because it's easier to face than the “if I'm hit by a bus tomorrow” continuity plan.

Hard as it might be, advisers need to start with the continuity plan, precisely because you don't know when you'll need it. If you're not ready to retire, you can put off planning for it. You don't get to put off an unexpected accident or illness — and you definitely don't get to put off the Grim Reaper.

Put another way, you owe it to your family and your staff to have a plan in case you become unable to make decisions about running the business. They will be dealing with powerful emotions and, as you've so often told your clients in assisting with their estate plans, that's not the time to be making critical decisions. The clock is ticking — clients need your services and if they believe you will not return, they will take their business elsewhere. That means the income your practice currently produces to support your family, and the value your family will receive if the business is sold, are dwindling.

Brainstorm with your spouse around the question, “If I were in an accident tonight and in a coma, what decisions would need to be made to ensure the business continues running in the short term?” Your spouse will likely be the one to inform your employees — does he or she have personal phone numbers for them? Can your spouse or a key employee sign checks in your absence to pay employees and vendors?

Repeat the process with your staff. Although your staff should be able to carry the business through the first few days, if your time away from the office will be longer than that, you will need someone with the appropriate licenses to serve your clients. You'll also need to work out how and when clients will be told about the situation.

With the immediate logistical questions identified, and a thorough understanding of your spouse's needs and feelings, you have a basis for selecting a successor and completing agreements to cover three scenarios:

1. Your inability to run the business is temporary.

2. Your inability to run the business is permanent.

3. You retire.

No matter how well you may think you know your continuity or succession partner, put everything in writing. Stories abound of friendships and partnerships that ended over who received the compensation — the adviser (or adviser's estate) who originally owned the client relationship or the adviser who stepped in to take care of business. That battle is a burden you definitely don't want to leave your spouse to fight.

Kirk Hulett is executive vice president of strategy and practice management at Securities America. He is a leader and consultant for the Practice Management Group, which provides consultation to investment professionals, and hosts a bi-weekly practice management podcast on


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