Do Financial Advisors Follow Their Own Advice?

By Hal M. Bundrick

NEW YORK (MainStreet) ¿ Ever wonder if financial advisors follow their own advice? They urge you to plan for the future, invest wisely and save for retirement. But turn the tables and you'll find over two thirds (67%) of these money pros don't have a succession plan in place for their very own business, according to research by Fidelity Institutional Wealth Services.

With the average age of financial advisors being 52, that's a problem.

"While there is no substitute for comprehensive succession planning, we recognize that for many [investment] firm leaders, this longer-term planning is a process that requires time," said David Canter, executive vice president and head of practice management and consulting at Fidelity Institutional Wealth Services. "Yet there's a need for advisors to put back-up measures in place immediately. We encourage advisors to establish business continuity plans ¿ even before their succession plans ¿ so they know their clients and their business are taken care of in case of an emergency."

Depending on an advisor to manage your financial assets, and then finding out that there was no succession plan in place can leave clients in the lurch. Consumers and small business owners can take a tip from this advisor neglect and form a succession plan for their own family or business. Fidelity offers these tips:

Limited Power of Attorney ¿ This document outlines a temporary plan if something happens to you or your business, ensuring that it can continue to operate and generate revenue.

Buy-Sell Agreement ¿ Every small business should have a plan in place specifying who will take the reins if the owner is permanently disabled or passes away. A buy-sell agreement helps to define a businesses' valuation, payment of the purchase price and closing terms.

Operating/Shareholders Agreement Review ¿ Family businesses especially need agreements that include provisions addressing both the temporary and permanent unavailability of one or more partners or principals.

"We have found that prudent business continuity planning creates a logical bridge to begin the dialogue on succession planning," said Brian Hamburger, president of MarketCounsel, a consulting firm for investment advisors. "Looking at the issue from a practical scenario, the unavailability or sudden loss of key personnel makes the issue real."

Hamburger says effective succession planning is becoming even more critical to ensuring current business owners hand over control to others in a way that is least disruptive to their firm's operations, clients and long-term value. That's a good lesson for advisors, as well as all business owners.

Fidelity offers six steps to help lead to a successful business transition:

  • 1) value your firm
  • 2) establish goals and determine timelines
  • 3) assess potential buyers
  • 4) evaluate different deal structure options
  • 5) address governance issues
  • 6) document your businesses' succession plan

--Written by Hal M. Bundrick for MainStreet

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