Deadly virus shows advisers need their own backup plan

Financial advisers and other industry professionals are not immune to the COVID-19 virus, which is projected to claim more than 100,000 American lives and leave some of those who survive disabled. Unfortunately, over the coming weeks, we will likely start to hear of more coronavirus deaths in our industry.

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InvestmentNews already reported the passing of Peregrine (Peg) Broadbent, the chief financial officer of Jeffries Financial Group’s main subsidiary. He was 56.

But this scary and unprecedented time is an opportunity to remind advisers that all firms should have continuity plans that take effect if advisers become disabled or pass away.

Such agreements are separate from a firm’s business continuity plan, a document that regulators require advice firms to put together to make sure they can operate and meet client needs during an emergency. A continuity plan – which some think of as a mini succession plan – ensures that if something happens to the adviser, clients have another adviser they can call for help with their asset management, planning or even just reassurance.

Planning for emergencies

Advisers work with clients over decades to plan for emergencies that might suddenly take them away from those who depend on them, but they tend to avoid doing the same thing for their own obligations — including their firms and their clients.

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Imagine a client, who’s panicked by the recent volatility and afraid for their own physical and financial health, reaching out to their financial adviser, only to learn from an assistant that their planner has passed away and there’s no one to immediately help with the client’s investment needs. Clients deserve better.

Who does what

The best continuity plans outline who needs to do what and when for every aspect of the business and details how to do it.

While there are not great statistics tracking the creation of continuity plans, only about half of the nation’s financial advisers have one, and only about half of those are actual signed agreements, according to experts who work with advisers on succession planning. The reality is that without such plans, client accounts will likely become “orphans” if their adviser passes away, and the adviser’s family will not receive money for the value of the business. No one wins. 

Even advisers who have created long-term plans for selling or passing down their businesses are not exempt from needing a continuity plan. 

Practically speaking, succession plans that a firm may work on for years can’t be carried out if the adviser doesn’t live long enough to turn over the reins. And just as the coronavirus is unpredictable in terms of how it impacts each person’s health, life does not guarantee that younger advisers will outlive older planners. 

No one in control

When a partner in an advisory firm dies without a plan, it can wreak havoc on the business for years to come. 

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As InvestmentNews reported several years ago, clients whose advisers die without leaving another adviser in control are sad, but also angry, at the lack of planning. Clients all said they would never again agree to work with an adviser without knowing whether he or she had a continuity plan in place.

Truth is, all advisers owe it to their clients to have a plan in place in case they are no longer able to serve them.