2) Your continuity plan should be a living, breathing document that is regularly updated to reflect reality, and should be reviewed in tandem with any buy-sell agreements.  As a first step towards this end, independent advisory firms should have their businesses undergo a professional valuation process.  Based on the results of that valuation, advisory firms should actively review the buy-sell agreements they have with their broker-dealer platforms once each year. 

A routine review of the agreement can help business owners ensure that their document takes into account changes in personal circumstances or changes in the business itself, and provides for evolution of the plan and the business valuation mechanism. That way, the continuity plan will be ready to do the job when you need it most.

3) When it comes to your buy-sell agreement, drive for maximum clarity in understanding the payment terms. Independent advisory firms should never guess at the payment terms contracted for in a buy-sell agreement, or simply plug in a number that seems about right – something that happens far more often than you might believe.

We recommend using a spreadsheet format to calculate the after-tax effects of buying out an exiting partner, and to take into account the business’s overhead structure, growth rates, cost to replace the lost talent, interest rates, etc.   Remember, one of the goals of a buy-sell agreement is to ensure that the company survives the buy-out process. Take the time to do the math from the outset.   

4) Make sure you understand how “disability” is exactly defined within your continuity plan.  Many business owners simply trust the standard attorney boilerplate language to define when an owner is disabled and must be bought out, or must sell. The reality of most disability cases is not the sudden and completely debilitating, near-death single event such as, say, an auto accident.

Instead, it is often something more subtle, some health issue that starts and stops for uneven intervals over many years, or it is the disability or medical condition of an advisor’s spouse or child that significantly alters their involvement and effectiveness on the job. Study the definition in your agreement carefully and make sure it fits the circumstances of your industry, your business, and your life.