Practice Made Perfect: Tackling Succession Planning

Though it’s a decision that has profound implications for their businesses, independent advisors across the country are largely neglecting their succession planning, doing themselves — and their clients — a great disservice.

The lack of planning is even more alarming considering drawing one up is becoming more important than ever, as the impending demographic crunch grows perpetually closer.

Some leaders in the industry, however, are trying to change that, knowing that if it’s done correctly — with the right amount of forethought and attention to detail — a well considered succession plan is essential to long-term success. One such leader is Todd Kelzenberg, Vicen President of Business Development at AdvisorNet, a Minneapolis, MN-based Super-OSJ with 270 affiliated financial advisors. AdvisorNet is with broker-dealer Financial Network Investment Corporation, a member of Cetera Financial Group.

Kelzenberg says the average age of an advisor affiliated with his firm is 56 years old, meaning it’s crucial for every one of them to have plan in place, though he concedes very few of them actually do.

“Most representatives, although they know they should have a buy-sell agreement, do not have one,” Kelzenberg said.

It’s why Kelzenberg says AdvisorNet encourages its associated advisors to sign an interim succession agreement, turning over the book of business to the firm temporarily should a death take place.

In such a scenario, while AdvisorNet does its due diligence to find a replacement that fits the needs of the affected clients, the business will continue to produce a revenue stream for the next few years for its beneficiaries. Otherwise, those beneficiaries, per FINRA regulations, can only be paid for 30 days, potentially resulting in huge losses.

To be clear, Kelzenberg prefers that an advisor has his or her own plan, rather than having one thrust upon them. But, ultimately, something is better than nothing, he says.

“Some written contract, no matter how rough, is better than no contract,” he said. “Informal hand-shake agreements do not work. Thirty days, from a regulatory and logistic perspective, is not enough time.”

Jim Thomsen, President of Thrivent Investment Management, Inc., a Minneapolis, MN-based FSI member broker-dealer with 2,500 financial advisors, says succession planning has become an evergrowing cause of concern for his firm over the last two decades as the Baby Boomer generation continues to edge into retirement.

“Baby Boomers represent a large segment of the financial advisor community, and, for the most part, that population is coming at us like a tidal wave,” Thomsen said.

For Thomsen, while compensation is certainly an issue, it’s far from the only one. He says when advisors focus on what is best for the clientele, in the end, everyone benefits.

He says the way Thrivent does that is by assembling a group of durable, long-lasting teams rather than having a loosely connected network of stand-alone representatives.

“Whenever possible, we try to create what we call leveraged practices,” Thomsen said.

“For our advisors, there are only so many hours in the day, and so many appointment slots available. If we can bring in new advisors to the fold, it frees up space for the senior advisor to pursue more high-value relationships, while the others get to know the business and clientele.”

Once that team is established, it makes the transition much more seamless when it comes time for the senior advisor to retire or to begin slowly easing out of the business — for the remaining advisors, Thrivent and, ultimately, the existing client base.

“Sometimes, conversations about succession planning among advisors can take place in a vacuum,” Thomsen said.

“Nobody should lose sight of the fact that, as always, it’s about the clients. They want to know, ‘Who’s going to take care of me when you’re out of the business?’ And it’s best for the advisor to know how to answer that as early on as possible.”

While Thomsen and Kelzenberg’s tactics clearly differ, one thing is readily apparent to both: The industry is at a critical stage in terms of succession planning. The reality, though, is that far too many advisors either don’t start planning for it early enough, or worse, don’t have a plan at all — something that worries them.

Which is where FSI comes in.

“It’s never too early to start building a team,” Thomsen said. “Having the ability to brainstorm ideas, network with other broker-dealers, OSJs and financial advisors about the best way to go about implementing an effective succession plan is something we are more easily able to do with the opportunities presented to us by FSI.”

Kelzenberg agrees, saying FSI assists with what he considers to be his number one responsibility.

“As a vice president of this company, if I did nothing else for the next 10 years but help get a succession agreement done for every one of our advisors, I think 15 years from now, people will say, ‘Todd is an absolute hero to the company,’ ” Kelzenberg said.

“I could do nothing else. It’s that important to our business — and FSI, by helping me get the word out, by stressing to our members the importance of this, plays a crucial role. It’s been an invaluable tool for us.”



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