Like the proverbial poorly shod cobbler, many financial advisors diligently protect their clients’ assets but neglect their own.

About 35% of Canadian advisors do not have a business plan and up to 45% have no succession plan, said Peter Wouters, director of tax and estate planning with Empire Financial Group, quoting figures from recent studies during a presentation on estate planning in Toronto.

The irony of this is that financial advisors often advise their own business owner clients on succession and retirement planning while not having their own plans in place. But having a succession plan has to become compulsory for every practitioner. “Everybody will be a seller of their practice at some point in time,” he said.

Typical questions

He summed up some of the typical questions that financial advisors ask clients when counselling succession planning: “What happens if the business owner dies prematurely? What happens if the business owner gets sick or hurt and can’t work? What happens if the business owner has a critical illness? Who’s going to take care of the business?”

He then cut to the chase by asking his audience: “When was the last time you took a good hard look at (your business)?” This examination is a vital precursor to the succession plan, which should be part of the business plan.

Peter Brauns, of Professional Investments Inc., is an Ottawa-based financial planner with several years’ experience. He has also noticed advisors’ tendency to bypass the business plan. He agrees that more than a third of advisers have no business plan, and thinks most of the others might have one, but it’s generally lousy.

Underinsured

Many do not have a will, or have not included the transfer of their clientele in their will, he added. Worse yet, most of them are underinsured in case of death, disability or critical illnesses, Mr. Brauns continued.

The repercussions could be huge. Life insurance, for example, lets the estate pay the tax bill that inevitably follows the liquidation of the company at death. But what about advisors that can no longer work because of disability, or critical illness?

“They put a lot of money in mutual funds and say they don’t need insurance. But only fools think they’re immortal,” Mr. Brauns explained.

Mr. Brauns speaks from personal experience: less than a year ago he was diagnosed with type 2 diabetes at age 59. “It will happen one day, especially when you’re not ready. You should do your planning while you’re still healthy,” he urged.

While he is convinced that he is on the right track with his own business plan, he advises that there is more to succession planning than obtaining insurance. It is just as vital to designate a successor. Mr. Brauns, like many other advisors his age, is hard pressed to find one.

“I wish to keep my business in the family,” he says, “but my sons are still not ready to take (it) on.”
Mr. Brauns has also thought about designating an outside party. He is giving himself ample time to deliberate before going any further.

Sudden death

His succession plan also prepares for the extreme case of his sudden death. In this scenario, his assistant, also a financial planner, would take the helm for a limited time.

If someday he sells his business outside his family, he has the option of selling to a fund firm. Mr. Brauns manages a clientele representing nearly $50 million in investment fund assets, along with unspecified life insurance assets.

Bob Labrecque, director of succession planning for the independent advisor channel at Manulife Financial, sees the succession plan as crucial.

Like the others, he believes that advisors both lack and require succession plans. Without a plan, an advisor’s sudden demise can be doubly catastrophic. One reason: heirs often have no knowledge of the industry. “It will be very difficult for them to make a decision about what to do with the block of business. They may delay things forever,” Mr. Labrecque warns.