The Succession Crises, it’s Not Just for CPAs Anymore

This weekend, after being trounced in straight sets by my tennis partner of 18 years, I happened to click on an AM station that featured nationally acclaimed financial planning expert Ric Edelman, author of a number of best-selling investment tomes including “The Truth About Money” and “Ordinary People, Extraordinary Wealth.”

On Sundays, he has for a number of years, hosted a show where he and several colleagues field callers’ questions which run the gamut from investing in securities, what types of insurance to buy and strategies to save for college.

Since my savvy investments and painstaking planning has yielded a portfolio capable of supporting my spouse and I for at least three weeks past my retirement, I hoped to glean some free advice on how to add a zero or two to my modest largesse.

Instead, he began talking about succession, or rather the shocking lack thereof among financial advisors. He actually threw out this astonishing figure: some 70 percent of current financial advisors (a profession where the average age is the mid-to-late 50s) have no formal succession plan. Figures from a 2011 survey by Charles Schwab were a bit more modest, reporting that just over 40 percent of advisors don’t have a formal or written succession plan in place.

Apparently, this succession crisis has gained the attention of the Securities and Exchange Commission who has stepped up on requiring and enforcing an already on the books mandate that advisors have a succession plan. Should an advisor get hit by the proverbial bus, there are stringent regulatory and compliance rules by the Financial Industry Regulatory Authority that prohibit the family of an advisor (in the event of their passing) from receiving direct payment and commission from the practice. So theoretically, a family of a deceased planning could receive only a fraction of what the practice is actually worth in the absence of a succession plan. Not to mention what would happen to a client’s financial security without anybody to assume the helm or even the members of your staff.

Sound familiar?

Apparently, the accounting profession is not the only one lagging on the succession front. Procrastination or worse, ambivalence, seems to be a universal language throughout a number of professional fields. The above-cited figures surrounding lack of succession plans among planners are shockingly similar to those seen in the 2012 PCPS Succession Survey released by the AICPA.

Not surprisingly, we get a number of calls from firms faced with succession issues, but in truth the number who actually engage us to help ease their respective crisis, is far lower than it should be. I’ll assume it’s that way for financial advisors as well. They politely listen to us and then foolishly assume that after a 10-minute phone call they can get enough complimentary advice to devise their own solution.

Sadly, they don’t realize that 99 times out of 100 they’re not part of the solution, but part of the problem.