And so, what steps might a broker-dealer consider to forestall any mishaps that might arise, and how should one respond to a situation that has crossed a line? As we have begun to consider the real possibilities of such occurrences, here are some of the key procedures and initiatives that a broker-dealer might undertake:
· Cultivate good relations with the advisor’s family. When the time comes to take action for transitioning an advisor away from his or her practice, it may not be sufficient to simply attempt to persuade the advisor to step aside. Having a good relationship with the advisor’s co-workers is important, but they are often not in a position of effective influence. However, forging a good relationship with an advisor’s spouse or children can be vital in engaging allies in the effort to bring the advisor around to your position and may serve to exert the gentle yet convincing leverage that may be needed to help the advisor relinquish control. Part of cultivating this relationship is establishing a privacy policy that will allow the broker-dealer to discuss material things with certain named parties. This policy needs to be in place before any impairment occurs with the understanding that these procedures are all meant to ensure the investor is protected, and the level of service that the advisor provides continues through a transition.
· Determine if the advisor has a good succession plan. Even before any impairment becomes apparent, any advisory should have a workable succession plan in place for transferring ownership while preserving value.
· Be prepared to step in if necessary. An abrupt change of control is not desirable, but it may become a necessity if an advisor clearly shows impairment. In such an event, it is best to act swiftly to avoid negative outcomes, ranging from embarrassment to legal liability.
In Gulliver’s Travels—which people generally think of in terms of the author’s fantastical journeys to the lands of giants and tiny people—Jonathan Swift also wrote satirically about a land where people never die. But in this land, immortality was not a pleasant prospect—the inhabitants just grew older and progressively deteriorated. It made for a grim existence.
Although we are not yet confronted with that dilemma, unfortunately, the longer our life spans grow, the more frequently we encounter signs of dementia in our colleagues and loved ones. For their sake, and for the sake of their families, coworkers and clients, at least we can be prepared to step in at an appropriate moment to help smooth the transition and conserve the value of their business.
Jeff Rosenthal is executive vice president and CMO at Triad Advisors (www.triad-advisors.com), the hybrid advisor-focused independent broker-dealer. Mr. Rosenthal served as moderator for a special roundtable on addressing the challenges of the aging out of the advisor population at the annual Triad Advisors National Conference held in Boca Raton, Fla.