Years ago, I heard Mark Tibergien say in one of his presentations that owner-advisors who don't have an emergency succession plan in place are acting irresponsibly and possibly violating their fiduciary duty to their clients. I couldn't agree more. The most common question we get from non-client advisors about succession is how to structure for an unplanned transition without a designated successor. In my view, if you have to ask, you are already behind.
Thankfully, we've only had to deal with a handful of situations where an owner-advisor unexpectedly passed away or became incapacitated, but there were enough for us to realize that there's very little information on the subject out there for advisors—and most of what is available doesn't appear to be based on real-world experiences. We attempt to have all our advisor clients create a formal sudden-succession contingency plan, one that goes way beyond what advisors typically include in their compliance policies.
The most important thing I've learned is that you just can't predict how people will react when the owner-advisor suddenly isn't running the firm anymore: not the staff, not the owner's family, not the clients. Consequently, it's just as important for firm owners to continue to lead after their death or disability as it is when they are at the helm.
To do that, owners need to create a clear and detailed plan of action written in third-grade English: In the event people are using it, they won't be thinking clearly. In fact, the firm owners who are writing the plan at their leisure and in the comfort of their office are the only ones who will be thinking clearly about these issues, so they need to do the thinking for everyone involved. The plan should spell out exactly what each key person needs to do, when they should do it and how they should act while they are doing it. The format should be a simple checklist, which is direct and easy to follow. While every plan will be different, here are some guidelines we encourage our owner-advisors to think about when writing their plans.
Even designated successors will be affected big time. Most owner-advisors seem to believe that their successors are waiting around to take over their business when they are gone and that they'll be happy to get their hands on the business. Most owners don't realize that the successor will be going through his or her own grief process while trying to keep the business intact. I've never seen a successor make rational decisions in the first few months after losing the owner-advisor.
Successors tend to fall into two camps. They either freeze and make no decisions at all or try to over-control the business. They feel pressure to "do something now" and start making a lot of decisions very fast—and very badly.
Recommend grief counseling. The vast majority of successors don't realize they have to do this. They will be going through a lot of pain and won't have a lot to give. Encourage them to learn something about the grief process. Understanding the various stages will help them realize that what they are feeling is normal, so they won't feel out of control. Also, remind them that they need to be very strong to continue to give to the clients.
Through their work, many people will find peace, but only for a period of time: Sooner or later, they will get burned out. Remind them that when the dust settles, they'll have to take some time to work with their own grief.
Designate an outside successor. If owner-advisors don't believe they have a fully qualified successor on staff, then out of responsibility to their clients, they should find a willing successor outside the firm. This is a decision solely for the owner. While junior advisors should be informed of the decision—they don't need disappointments during difficult times—it shouldn't be a topic for discussion. Simply tell them you don't think they are ready to run the firm yet, but when they are you'll change the plan. We currently have two firms with successors who are 95% ready. They know if something happens to the owners, their firm will be sold, and I'll negotiate a partnership for them in the new firm.
