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Spring 2013

August Current Thinking Column

Sunday, August 30, 2015

Know Your Advisor's Succession Plan

by William E. Roberts, CLU, ChFC

An often overlooked issue in family business succession planning is the succession plan concerning the advisors to the family.  It is a sensitive and sometimes delicate subject to broach with advisors who, oftentimes, have worked with the family for several years. That being said, it is a subject that should be a definitive aspect of the family’s agenda, as demonstrated by the following story.

We spend our lives with clients, assisting them in devising sometimes complex succession plans for their family businesses.  While doing so, we and the other advisors build a significant body of embedded information and history that is brought to mind at almost every review meeting.  Having the memory of or recorded documentation of why certain decisions have been made is an important element in keeping the family on track as they progress into their transition plan.  The availability of this information is often assumed as a "given."

That is, until one of the advisor collaborative teams is taken out of the planning circle by events beyond their control.  In an instant, all the wealth of their cumulative knowledge and experience with the family is lost. Trying to reconstruct this information is both difficult and time-consuming.  

We encountered such an occurrence with one of our most valued clients.  The business is currently passing to the third generation, and the family has spent significant time and resources in the succession planning from Generation-1 (G-1) to G-2, and now on to G-3.  They have done an amazing job of remaining consistent to their family values and principles, all of which are deeply embedded into their planning advisory team's memory. Two members of the advisory team have worked with the family for over 35 years, and in regards to the family’s planning, "know where all the bodies are buried,” to use a cliché.

All was proceeding normally until suddenly, the family attorney, one of the 35 years of service to the family advisors, announced in an estate planning update meeting that he had been diagnosed with stage 4 prostate cancer, and was anticipating significant radiation and chemotherapy treatments.  He asked to resign from the planning to focus on the difficult task of beating the cancer.  Unfortunately, his battle was not successful, and he passed a mere 9 months to the day from his resignation.

The problem this created quickly became apparent.  He had been a very successful estate planning attorney, but was a sole practitioner practicing out of a home office.  With no successor nominated or mentored by him, there was a vacuum in the knowledge and history of the complex legal work the family had accomplished through the years.  This essentially brought the important planning that neared completion to a halt.

The family spent nearly a year acquiring recommendations of qualified attorneys and interviewing them extensively.  They were fortunate enough to find a very competent replacement with vast family succession experience and good rapport with the family.  However, even with his remarkable skill sets, it took months to retrieve the family's legal files from the home office of the deceased advisor and additional time to read through and understand the complex set of trusts and other structures.  Meanwhile, the estate planning projects previously mentioned were at a standstill.  Fortunately for our situation, nothing happened that adversely affected the family.

This experience was not lost on the rest of the planning team, as the CPA has brought a very accomplished cohort into our meetings, who is currently building her knowledge of past history, as well as contributing additional perspective and impetus from the accounting side.  I have brought my son into the family meetings because he will be a significant presence in my transition planning.  He is now working with G-3 on his estate and succession planning.

The moral of the story is in the title of this article: know your advisor’s succession plan.  Ask them the same tough questions that they have posed to you.  What or who is the successor who would step in should, God forbid, something happen to you?  What are you doing to bring them up to speed on past planning?   How are you mentoring them to improve their ability to be the good successor if the unthinkable happens?  When will they become part of the planning team and what role will they play?  You can create your own agenda of questions, but the important point is actually creating this agenda for discussion.

As the life insurance industry's legendary figure, Ben Feldman, stated many years ago, "No one has a lease on life.” That includes your advisor team.  Hard questions that motivate an actionable agenda by the advisors can save your family an enormous amount of angst and time-consuming difficulty.

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