Are You Succession Ready?

Fidelity® : Two-Thirds of Advisors Don’t Have Succession Plans in Place

October 23, 2013 – BOSTON–(BUSINESS WIRE)–Fidelity Institutional Wealth Services, a division of Fidelity Investments®, today unveiled new research from the 2013 Fidelity RIA Benchmarking Study that found two-thirds of participating firms (67 percent) reported they don’t have a succession plan ready for implementation. While this reflects an improvement from the 2011 Fidelity RIA Benchmarking Study where 75 percent of participating advisors reported not having a succession plan, it’s still inadequate for an industry with an average age of 52.3 The 2013 study also found that more than half of participating firms (55 percent) have not changed their approach or readiness for succession for the past three years.

To help advisors accelerate their path toward succession planning, Fidelity is providing its clients access to a business continuity program called “Succession Ready.” Offered by the consulting firm MarketCounsel, the program provides Fidelity’s RIA clients access to a turn-key program at a reduced rate.4 The “Succession Ready” program aims to put some certainty around the unexpected, such as an advisor’s death or disability.

“While there is no substitute for comprehensive succession planning, we recognize that for many RIA firm leaders, this longer-term planning is a process that requires time,” said David Canter, executive vice president and head of practice management and consulting at Fidelity Institutional Wealth Services. “Yet there’s a need for advisors to put back-up measures in place immediately. Our goal with providing access to this program is to encourage advisors to establish business continuity plans – even before their succession plans – so they know their clients and their business are taken care of in case of an emergency.”

MarketCounsel’s “Succession Ready” program is designed to provide advisors three important documents that are commonly used to create a contingency plan:

  • Limited Power of Attorney — outlines a temporary plan if something happens to the principal and they’re unavailable to run the firm, ensuring that the firm can continue to operate and serve clients;
  • Buy-Sell Agreement –- specifies who will acquire an advisor’s business or clients if the principal of the firm is permanently disabled or passes away, and contains provisions addressing valuation, payment of the purchase price and closing terms;
  • Operating/Shareholders Agreement Review –- provides a detailed review of these agreements to ensure they include provisions that address both the temporary and permanent unavailability of one or more partners or principals.

“We have found that prudent business continuity planning creates a logical bridge to begin the dialogue on succession planning,” said Brian Hamburger, president of MarketCounsel. “Looking at the issue from a practical scenario, the unavailability or sudden loss of key personnel makes the issue real. It’s a genuine business concern that advisors feel called to take on to protect their clients, employees and families. Advisors can begin to envision that without having to take on more difficult scenarios such as their own death.”

Effective succession planning is becoming even more critical to ensuring current business owners hand over control to others in a way that is least disruptive to their firm’s operations, clients and long-term value. Fidelity’s practice management and consulting team is dedicated to helping advisors prepare for succession through a wide range of resources, including:

  • A new guide, “Developing a Plan to Transition Your Business to an Internal Successor,” that is designed to help firms develop an internal transition plan. The guide outlines six steps to help lead to a successful internal transition: 1) value your firm, 2) establish goals and determine timelines, 3) assess potential buyers, 4) evaluate different deal structure options, 5) address governance issues and 6) document your firm’s plan.
    A focus on internal transition is critical as the 2013 Fidelity RIA Benchmarking Study found it is advisors’ preferred succession method. Specifically, the study found that more than half of participating advisors (57 percent) want to transition their firm to someone internally (vs. 11 percent wanting to merge with another firm and remain involved and 14 percent wanting to sell their firm and exit the business). These findings are in line with the informal surveys Fidelity has conducted at succession planning workshops across the country, which also found that the majority of those who want an internal transition have not yet identified a successor.
  • Fidelity’s “Realizing the Value in Your Firm” program features in-person workshops and events hosted nationwide throughout the year that help advisors understand their succession planning options, engage with advisors who have executed succession planning strategies and ultimately choose the succession “track” that is right for them. Fidelity uses a guide as well as a sequence of personal and group exercises including the Track Selector GameTM to help advisors determine which of three succession strategies is most aligned with their vision: “internal transition,” “merge and stay involved” or “sell and move on.” The program is so distinct in the marketplace, it was recently awarded patent #8,533,017 by the U.S. Patent and Trademark Office.
  • A robust M&A program that centers around education and insight, access to financing – specifically, through a recent alliance with Live Oak Bank – and connections to firms looking to buy, sell or merge.
While there is no substitute for comprehensive succession planning, we recognize that for many RIA firm leaders, this longer-term planning is a process that requires time

About Fidelity Practice Management and Consulting Program
The Fidelity Practice Management and Consulting Program is a multi-faceted client service that provides advisors access to a wide array of insights, best practices, strategic consulting services and business-oriented tools and programs to help accelerate business growth, maximize productivity and protect their practices.5

About Fidelity Institutional Wealth Services
Fidelity Institutional Wealth Services is a leading provider of trading, custody and brokerage services to Registered Investment Advisors, Trust Institutions and Third Party Administrators. The company is able to leverage the capital, resources and expertise of the Fidelity organization, one of the world’s largest financial services companies, on behalf of its clients. This includes access to a comprehensive set of products and services, innovative investment tools and research, an integrated brokerage and trust platform, and dedicated client service professionals – all designed to help its clients thrive by growing their businesses, more effectively meeting customer needs, and enhancing operational efficiency and profitability. Fidelity Institutional Wealth Services custodies $660 billion in assets on behalf of more than 3,200 clients, as of June 30, 2013. For more information about Fidelity’s services, please visit here.