Safeguarding Your Legacy: Contingency Planning for Independent Financial Advisors

Any successful Independent Advisor understands that building an advisory business requires dedication, expertise, and a strategic vision. Dedication to fostering deep, multi-faceted relationships with clients, centers of influence, colleagues, and industry professionals. Expertise earned through licensing, continuing education, and experience, most likely coupled with a relentless desire for self-improvement. And finally, successful advisors must have a strategic vision to ensure the financial well-being of their clients and safeguard their personal legacy by preparing for unforeseen events that could impact the continuity of their business.

I purposely use the term advisory business instead of the more widely accepted term advisory practice because there is a distinction. As my good friend, founder and CEO of Sowell Management Bill Sowell would say, “Advisors are not practicing! This is a business!” To Bill’s point, independent advisors, regardless of affiliation or employer, should view their advisory business as a business, and safeguard it accordingly.

While most advisors seem quick to educate their clients on the importance of contingency planning, from my experience, few advisors have a well-crafted contingency plan for their largest asset … their personal advisory business.

Why Contingency Planning Matters
Compliance and Regulation

Certain regulatory bodies may soon require advisors to have contingency plans in place and publicly disclosed. Ensuring you are out in front of compliance trends not only protects you from future regulatory issues but also instills confidence in your clients and stakeholders. Afterall, you would never let a client open an IRA without a beneficiary.

Protecting Your Clients

Whether you are an Investment Advisory Representative (IAR) or a Register Investment Advisor (RIA), as an Independent Advisor you are called to uphold the fiduciary standard of care with advisory clients. Contingency planning is not just about protecting your interests but, more importantly, safeguarding your client’s interests. A well-thought-out plan ensures that your clients continue to receive the quality service and unbiased advice they have come to expect, even in your absence.

Ensuring Your Legacy

A sudden departure due to retirement, disability, or unforeseen circumstances should not destroy your life’s work or even disrupt the operations of your advisory business. A well-crafted contingency plan provides a roadmap for a seamless transition, ensuring that your business continues to thrive in your absence and your heirs are compensated for the legacy that you have provided.

In the ever-changing landscape of financial advisory, a robust contingency plan is your commitment to your business, your clients, and the legacy you have personally built.

Key Elements of a Contingency Plan
Successor Identification

Identify your potential successor and set some criteria for their selection; for example, ease of transition, understanding of your business, and the ability to maintain client relationships. Even after a triggering event, the value of your business is contingent upon the retention of your clients and their assets.

I would try to address how client relationships will be maintained during the transition to minimize any disruptions.

Buy-Sell Agreement

Define the trigger events that would activate the contingency plan, such as retirement, disability, or death. Knowing when and how the plan should be implemented is crucial.  Establish an agreement detailing the terms and conditions for the sale or transfer of the business. This includes determining the valuation method and the funding mechanism for the purchase.

I would make sure that the agreement is non-binding and provides you with the ability to void the agreement prior to a triggering event.

Prepare for the Future Today

By proactively addressing potential challenges, you guard your legacy and ensure that the trust and relationships you’ve cultivated endure for generations to come. Don’t wait for the unexpected – start crafting your contingency plan today and fortify the future of your advisory business.

Business continuity agreements are available for financial advisors on the Sowell Management platform. Get started by booking a call today. 

BLOG DISCLOSURE: This website blog is published and provided for informational and entertainment purposes only.  The information in the blog constitutes the content creator or guest blogger’s own and it should not be regarded as a description of services provided by Sowell Management. The opinions expressed in the blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry.  The views reflected in the commentary are subject to change at any time without notice.

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