Former clients of Barnes Investment Advisory in Phoenix are getting settled in their new home at Versant Capital Management Inc.

The fact that they have a new home and continued financial advice is a testament to pre-planning, according to the principals in both firms.

It also shows the importance of having a succession plan in place, even while firms are successful and the partners are healthy, and of revisiting that plan regularly.

Versant, an RIA also based in the Phoenix area that is approaching $1 billion in AUM, was founded in 2004 by Thomas Connelly, who had been a close friend for many years of Stephen and Kathie Barnes, who owned Barnes Investment Advisory. The two firms were fee-only, concentrated on high-net-worth clients and had a similar investment philosophy.

Then a year ago, the work at Barnes came to a screeching halt when Stephen had a stroke. Once he decided he was not returning to work, the two firms activated the succession plan, and the clients of Barnes Investment Advisory, which had $150 million in AUM, were merged into Versant, where Kathie Barnes has become a consultant.

Versant and Barnes started with a two-way buy-sell agreement that said if anything happened to the principals of either firm, the other would take over the business at a predetermined price. Versant grew, hired Liz Shabaker as CEO and partner, and established an internal succession plan. The agreement was changed to a one-way buy-sell agreement that said if anything happened to Kathie or Stephen, Versant would acquire the Barnes business.

That plan was enacted when Stephen had his health problems.

Versant has a similar agreement with another firm in California, Connelly says. It had yet another agreement with an outfit in Colorado, but that one was terminated when the Colorado firm established an internal succession plan.

Unlike Versant and Barnes, 73% of advisory firm owners do not have a written succession plan, and 60% of those owners five years away from retirement don’t have a plan in place, according to the Financial Planning Association.

“If you don’t have a succession plan in place, you don’t know how your family is going to get value out of the firm, and you don’t know what will happen to your clients and to your employees,” Connelly says.

“At the start of the business, Kathie and I had life insurance and disability insurance, but that was not enough,” Stephen says. “Clients would ask what would happen to them if something happened to both Kathie and I. When I was lying awake in the hospital, I was very grateful we had a plan in place.”

Kathie says, “Every year for 10 years we had an annual meeting in July between Versant and Barnes to go over the agreement. Eventually, as Versant grew, they did not need us anymore but we still needed them.”

As a result, the agreement was changed. “When we had to enact it, we retained 90% of our clients,” she adds.

“We had the plan in place, and when it came time to use it, we did not have to reinvent the wheel,” Shabaker says. “We beefed up our team and we are integrating the clients into the firm. We already have met with 60% of them.”

“The agreement was critical to our continuing and was very reassuring to our clients,” Kathie says. “Why did we have a plan? Because we are excellent planners, and, in this case, the planners had a plan for themselves.”