THIS Is Why Succession Planning Is A Must

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.