Catastrophic succession planning

Succession Planning

Catastrophic succession planning

Proper planning can help your business make the best of the worst times.

By Patrick Jinks, CPA, AAMS®
Vice President, Succession Planning & Acquisitions, Raymond James Financial Services

As a financial advisor, you assist clients in planning for their futures. But have you planned for the future of your own practice? What happens to your business if tomorrow you are permanently disabled or die? Where do your accounts go? Will your spouse or other beneficiaries receive economic benefit from your practice?

Consider these questions:

Q: What happens if a branch owner dies or becomes disabled without a written succession plan on file?

A: Without a valid written succession plan, the broker/dealer may take over the branch owner’s accounts, block other financial advisors from soliciting those clients for a set period of time (e.g., 60 days), and the branch may be closed. In some cases and depending on the business agreement the branch owner has with the firm, the branch owner’s beneficiary may only receive any earned but unpaid revenues, less any outstanding expenses.

Q: What happens if a financial advisor in a branch dies or becomes disabled without a written succession plan on file?

A: Depending on the broker/dealer, if the financial advisor does not have a valid written succession plan, the deceased or disabled advisor licensure is terminated and his or her client accounts could be transferred to the branch owner or to the broker/dealer if the owner requests. In some cases, the branch owner may, at his/her discretion, make a one-time payment or execute a fixed note with payment to the advisor’s beneficiaries but may be under no obligation to make such a payment, and the payment cannot be tied to or related to commissions or fees that are earned. The reason it is at discretion is that there is no contractual obligation to make any payment, and there cannot be sharing of revenue pursuant to FINRA rule 2040.

Q: Can I designate an assistant or branch professional as my successor?

A: Some branch owners name a licensed assistant or branch professional as their catastrophic successor. While this may seem better than no plan, it is better to search for a producing financial advisor to minimize client attrition in coordination with retaining the branch professional. Depending on the firm, any licensed branch professional must meet the experience and qualification standards that the broker/dealer applies for approving any individuals for the role of branch owner and manager – being named a successor does not automatically qualify someone to become branch owner.

Q: Why do I need a succession plan if I don’t plan to retire from the business?

A: Even if you don’t plan to retire, in order to protect your business, clients and family, you need a written business continuity agreement that addresses death and/or disability, permanent or otherwise.

Q: Can my successor be with another broker/dealer?

A: Depending on the broker/dealer, they can only block transfer of accounts to a financial advisor within their firm. Clients would need to complete paperwork with the successor to move to another broker/dealer; logistically this would be nearly impossible unless the clients were made aware in advance and then chose to work with that financial advisor. In addition, client privacy laws, specifically FINRA Regulation S-P, prohibit the unauthorized sharing of personally identifiable information with anyone external to the broker/dealer of record; there are also state-specific privacy laws that must be observed. Because of these requirements, client retention typically suffers – which in turn may lower a successor’s payments to a beneficiary based on future revenues (which have to be facilitated from broker/dealer to broker/dealer) – and therefore a successor external to your current broker/dealer would not be a feasible decision.

Follow these steps:

By following these three steps, you can begin to help ensure your clients receive the proper service, your family is compensated for your years of hard work, and your staff is taken care of if something catastrophic were to happen and you are no longer around:

1. Identify a potential candidate to help service your accounts – he or she should be a currently licensed financial advisor at your broker/dealer. If you do not know where to start, contact your broker/dealer for several references.

2. Meet with the candidate(s) and discuss your investment style and client base and also business philosophy and methodology.

3. If you and the candidate are a good match, complete a business continuity agreement that specifically includes payment terms and meets the criteria of a bona fide contract; your broker/dealer should have form samples for you to utilize.

If you do not have a catastrophic succession plan for your practice, we hope you’ll put these three steps into action. By doing so, you’ll provide your business, your clients and your family and/or beneficiaries with an easier transition during an already difficult time. 



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