Max Briggs, chief executive officer of FLC Capital Advisors in Palm Desert, Calif., is one of an elite group of people who can brag about surviving a shark attack. He has the inches-long scar on his leg to prove it.

In addition to being extremely frightening, the attack was a rude reminder that his financial advisory firm did not have a succession plan in place. He now knows it is something that has to always be there as situations change. It is not something you can let lapse. Not even for a few months.

Indeed, when he was attacked, it had only been that long since he'd faced down a previous succession problem. He had been in business with a partner who died in 2007 at the young age of 42. The two had a buy/sell agreement financed by life insurance that handled the business transition when the partner died.

"Without a plan in place, if something tragic happens or a retirement occurs, half the business could go out the door," Briggs says. Thanks to this prior planning, done when no one thought it would be needed, the firm was able to retain 99% of its clients after his partner died.

But then, without a new plan in place, Briggs went fishing in the Bahamas nine months later in June 2008. He was skin diving and spear fishing in 20 feet of water when a 7-foot bull shark attacked his leg. He was within minutes of bleeding to death, and he had to be airlifted to Miami. He survived the attack, but part of his leg had to be reattached.

Briggs never imagined he would need another succession plan so quickly. If the shark had killed him, his clients and employees would have been left out in the cold. His wife would likely not have realized any of the value of the practice he had built up over 15 years, he says.

Briggs now is affiliated with Securities America, which has started a coaching program to help financial firm owners through the steps of leaving a firm, whether it is voluntary or not. The shark attack prompted him to draw up another plan and begin to mentor a colleague so all the clients would know someone in the firm besides him. He now has another buy/sell plan in place with his new partner.

Few planners anticipate something like a shark attack happening to them. Advisors are in the business of planning for their clients and often neglect to plan for themselves.

In a recent study by MultiFinancial Securities Corporation called The Pulse of Practice Health, 18% of advisors said they had a fully documented succession plan and another 21% said they had at least a partially documented plan. But Stephan Quinn Cassaday, the founder and president of Cassaday & Company Inc. in McLean, Va., says that after talking with others in the business he highly doubts the figures are even that high.

"If 10% of firms have a viable succession plan, I would be very surprised," he says. "It is a huge problem."

But it is at least something firm owners are starting to think about, partially because the industry has existed for a few decades now and many owners are pushing retirement age. Cassaday says that a succession plan is not only good business practice but also a competitive advantage. If potential clients know a plan is in place, they will believe the firm's principals have thought about the future and can provide business continuity in case of disruption.

Cassaday says he treats his employees, many of whom have worked for him for more than 15 years, like family and says he would not want to leave them unprepared if something happened to him. As Briggs knows, bad things can happen to even young planners who aren't planning on leaving the business.

Cassaday founded his firm in 1993 and now has 24 employees and more than $1 billion in assets under management. It took him two years to develop his own succession plan, but it is now firmly in place.

There are two questions to think about in developing a plan, he says: "What if you get hit by a bus and what happens when you are ready to retire? I wanted to make sure the firm could continue to function well without me and wanted to lay the groundwork for an elegant departure if I retired someday. I have worked to make myself obsolete so that the firm can operate without me if I am not around. This, coupled with a formal and binding arrangement for transfer of firm assets at my death means that we have covered all the bases."

To cover for the unexpected, he set up a life insurance policy on himself on which the other principal advisors in the business pay the premiums. If he dies, his wife will be compelled to sell to the other advisors in exchange for the insurance proceeds.

Although he says it is unlikely he will ever retire, Cassaday has laid the groundwork for monetizing his interest in the business if he does. To that end, he sold part of his firm to his top employees last summer.

"A sale to employees is the best choice for this for a variety of reasons," he says. He says the transition will be easy, and there will be no acclimation or cultural adjustments for the team. They will already be familiar with the company's systems and processes.

"My top advisors have been with me since they got out of college and know each other and each other's clients. We work collaboratively on investment management and financial planning to produce a uniform program deliverable to all clients, and we are largely interchangeable as a result."

Cassaday decided to sell a 10% interest in the firm to each of his top three advisors and gave them phantom stock for an additional 15% interest each. These phantom shares vest if the company is sold to a third party and are forfeited if an advisor leaves (the departing advisor's ownership stake is put back into the firm). These provisions, potentially equivalent to 75% of the business' equity, give advisors a reason to stay and make the firm more stable, ensuring continuity, he says.

It didn't take a lot of negotiation to decide what the business was worth, he says. Cassaday agreed to value it at six times earnings before interest, taxes, depreciation and amortization, which he believes is a low number considering the firm's size, stability and asset growth. When his colleagues saw he was willing to sacrifice, they were willing to negotiate in good faith, he says.

"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."

As a result of this experience, Connealy updated his own plan. "Producing branch managers have their own issues to deal with in succession planning," Connealy says. He has chosen different people to succeed him for his advisory work and his branch manager job, he says, because a single successor might not have both skill sets.

According to Connealy, there are additional benefits of succession planning besides the advisors and their families' well-being. "As an employer, it is equally important to me that the business continues on without interruption and my employees retain their jobs if I should die prematurely," he says, adding that many businesses die with the owner or partner. "So succession planning has much to do with acting responsibly for the benefit of those who have assisted in building your business."

Roger Verboon, a senior practice management consultant at Securities America and is involved in its coaching program, works with advisors to set up succession plans. "It is inevitable that someone will have to take over a firm eventually, but many of these firm owners started as small shops and they have not really thought about it.
Sometimes it takes a lot of hand-holding and coaching. You do not need an enormous plan in place, but it is something you have to think about as a firm owner."

For some advisors, like David Peterson, the former managing director of Peak Capital in Denver, preparing for the future can mean joining a larger group but remaining independent. Peterson's firm became a division of United Capital, which has $16 billion in assets under advisement.

"The reasoning was that being part of a large firm like United Capital offers us, our team and the clients peace of mind that business will keep running smoothly should the unexpected happen," he says. "Or when I retire, I can gradually phase out and have others step in without a significant change for the clients."

United Capital is made up of 36 firms like Peterson's and offers back-office support and services. Peterson says he was nervous at first about losing control, but in the end it has not been an issue for him or his three partners.
Joe Heider, the owner of Dawson Wealth Management in Cleveland, for similar reasons decided to join Rehmann Financial. Dawson handled 600 retirement plans and Heider had 30 employees, but he had no succession plan. So he joined Rehmann, along with three other firms, as part of its expansion into Ohio.

"Why not go it alone? Because it did not provide a good succession plan for our clients or our associates," says Heider. "I had no plans to retire, but when I was about 54 [three years ago] I started thinking about what happens 10 years from then. Becoming part of Rehmann expands our capabilities and provides a true succession plan."
He is now the managing regional partner for Ohio and Indiana, and is seeking out other advisory practices and CPA firms to become part of Rehmann. "This also allows me to specialize in what I really enjoy most, which is wealth management services to high-net-worth business owners and doctors," he says.

"My clients know there is a deep bench that comes with a firm of 750 associates across retirement, tax, consulting, corporate investigative and wealth management services. The ability to collaborate with in-house expertise that comes with a firm consulting to more than $3.5 billion in assets is a bonus for my clients and myself."