"We have gotten lots of good feedback from clients about this," Cassaday says. "Continuity and stability are extremely important to the clients and they saw this development as a vote of confidence by me in the younger advisors in the firm."
For broker-dealers and custodians, the issue of succession planning and lack thereof has prompted concern along with efforts to remedy the problem. Firms like LPL Financial, the nation's largest independent broker-dealer, have made a concentrated effort to teach affiliated advisors the importance of a succession plan and made it easy to create one. As a result, more of its advisors have a plan in place, firm executives say.
"About 10% of financial planners industrywide have a succession plan in place, and we have increased that to 30% for our planners," says Sal Zambito, LPL's senior vice president of business consulting. "We'd like to see that at 50% or 60% within a few years."
Financial advisors are too busy building their business to get around to making a succession plan, he says, but if they don't have one, it costs the planner's heirs and clients dearly. If there's no plan in place and something happens to the advisor, fees cannot be collected and business dries up, he says.
LPL stresses succession planning whenever it has workshops or conferences. It is always one of the first topics discussed with advisors. Sandip Sehmi, president of OC Wealth Advisors in Irvine, Calif., an LPL-affiliated firm, says he was recently persuaded to make a succession plan for his firm after he was called in to help out another LPL advisor who died unexpectedly without one.
"That was in January and now it is May, and I am still trying to sort things out," says Sehmi. "Some of his clients accepted me and others did not, and some people do not even know he died yet."
If there had been a succession plan, this would have been a much easier transition for the family and the clients, he says. LPL provides standard templates for these plans, which is what Sehmi used. A basic plan can be modified to provide any personal stipulations the advisor wants.
"It was always something that was in the back of my mind, I just never got around to it until I was faced with this other situation," Sehmi says.
Others take a different tack, such as Jack Connealy, the owner of JFC Financial in Lincoln, Neb., who is also a branch manager with Securities America. A partner in one of the firms under Connealy's supervision was killed in a car wreck at the age of 37, and the firm had no contingency plan to replace him. Connealy says luckily everyone was agreeable in this case and the surviving spouse was compensated. But she would not have been protected legally if someone had disagreed. A succession plan takes care of that problem.
As part of a plan, the value of the business needs to be determined, and the principals have to be covered by insurance to make sure everyone is protected. "Without a succession plan, you are always going to find there are surprises if something goes wrong," Connealy says. "There will be family members of the owners who do not understand how the financial services business works, and they are left wondering why they are getting what they get if something happens." In the case of the advisor who died in the wreck, if the partners had not been willing to compensate the surviving spouse, "I do not know where we would have ended up."