When Time Runs Out

His blog read, in part: “I plan to continue helping clients … I feel fine and enjoy what I do. As the disease progresses that may change, and I may need to scale back or even stop ... Until then, I will focus more on developing a meaningful succession plan and helping my clients become more self-sufficient.” Forget about whether an adviser wears the fiduciary label. All advisers owe it to their clients to have a plan in place in case they are no longer able to serve them. Clients who trusted a financial adviser who didn't prepare for the unthinkable — and the unthinkable occurred — know the grievous consequences of this lapse. In June 2012, Bonnie Williams was frustrated when Stanley Hargrave, her adviser of 15 years, stopped returning her phone calls. About three weeks later, she learned that Mr. Hargrave had died from a heart attack and complications of diabetes. Stunned, Ms. Williams asked whom she should talk to about her financial issues, and was told, “We're working on that.” Mr. Hargrave, who had helped counsel her through a divorce and the death of her mother, did not have a plan for who would take over his business. “I was stuck without a financial planner, fresh out of a divorce and not sure of how to make these investments,” Ms. Williams said in an interview from her home in Palm Springs, Calif. “He didn't leave me purposefully, but he put me in a bind.”

"He had a long-term plan for succession, but he had no idea that he wouldn't be there long enough to make it happen." — Dick Zellner, client

Mary and Dick Zellner received a call from their adviser, who was in the hospital, about two weeks before Christmas in 2011. He told them he had Stage IV cancer and could no longer be their financial adviser. He died a few days later without identifying a successor. “He had a long-term plan for succession, but he had no idea that he wouldn't be there long enough to make it happen,” Mr. Zellner said in an interview from the couple's home near Denver. The Zellners, both 74, said that for weeks they didn't know what to do. “Advisers should have a sense of responsibility, of wanting to take care of their clients if something happens to them,” said Matt Matrisian, who directs practice management at AssetMark Inc. “They should ensure that there's a plan in place so clients will be treated well; they need to build at least a continuity plan.”

More and more, he said, clients are proactively thinking about this issue and asking their adviser, “What happens if something happens to you?” The lack of a plan could increasingly become an issue for advisers without one if a client requires it before agreeing to do business, he said. In fact, all the clients interviewed for this story said they would not work with a solo adviser again unless someone was identified to take over the business if he or she died or became incapacitated. The Zellners found a new adviser by calling TD Ameritrade Inc., which held the couple's accounts. The firm recommended Mercer Advisors Inc., which had just opened an office near them, in Boulder, Colo. They're now happy to be working with an adviser who is part of a larger office. “As a fiduciary, advisers always have to put the client's interest first, and that includes not just managing money but succession planning,” said Bryan Baas, director of institutional risk oversight and control for TD Ameritrade Institutional.

Succession SuccessesWhen Todd Clarke's father died in a plane crash in 2012, the financial planning business he started continued on – thanks to their family's foresight in creating a succession plan.Read Todd's Blog

Otherwise, clients are forced into the unnerving position of having to find another adviser and essentially start over if the unexpected happens and no plan is in place, said Dennis Hebert, founder of Hebert Financial Strategies in Liverpool, N.Y. He teaches a certified financial planning program about succession planning and has several clients who came to him after an adviser in a nearby town died suddenly. “Clients worry whether the investment philosophy will be the same as the deceased adviser and whether the new adviser will make a lot of changes to the portfolio,” he said. It's easier for everyone if a plan is in place and, ideally, the clients have met successors before they are tapped to take over client relationships. Seeing a familiar face can help ease the anxiety caused by an adviser's abrupt death, experts said. Frederick Paulman, president of RMB Capital Management, said several clients who came to him a few weeks after their adviser died in an automobile accident on Thanksgiving in 2012 were upset and very emotional. Even before RMB Capital formally agreed to buy the deceased adviser's book of business, the man's clients came to see Mr. Paulman to evaluate whether they were interested in him taking over their accounts. “They would come in to see whether we were reasonable people, and we would always end up crying,” he said. The relationship between advisers and their clients is often a strong bond that will only intensify when care is taken to plan ahead. Mr. Candura, who continues to work while undergoing radiation and hormone treatment, said clients have been supportive, sending him cards and even signing him up as a beneficiary of prayer groups. Many have told him they were glad he informed them. Though none of his clients have moved their accounts, Mr. Candura said he's not sure if some prospects who visited his website and read the blog have chosen another adviser. He leads about 50 adviser ethics webinars and seminars each year, and recently built his own circumstances into one of the case studies he reviews. Asking advisers whether it's their duty to disclose a chronic disease, about two-thirds of those attending his classes said they would keep their condition to themselves. “Whose interest are we protecting by keeping it private?” he asks them. Some advisers change their mind when Mr. Candura discusses his situation and thought process. But it's a difficult question, without a clear-cut answer. “I don't know if advisers have an ethical responsibility to share their specific health conditions, but they have ethical responsibility to make sure their clients are taken care of and that they are acting in their best interests,” Mr. Matrisian said. “That includes having a plan for what happens to their clients if something happens to them.” John Anderson, head of practice management solutions for SEI Advisor Network, said advisers often fully intend to assemble continuity and succession plans but get bogged down with the day-to-day tasks of running their business. In the SEI adviser survey, 69% of the respondents said they want to put a continuity plan together in the next three years, Mr. Anderson said. A continuity plan doesn't have to be a long, involved project like a succession plan, however. An adviser can take several steps to put an executable continuity plan in place in a few days, according to Brad Bueermann, chief executive of FP Transitions. First, advisers need to find a licensed person willing to agree to step in and take over clients if he or she dies or is unable to work. Three types of agreements can be implemented with varying levels of obligations. The “lightest” option is a revenue-sharing agreement that assigns clients and revenues to another adviser — a step that would happen through a broker-dealer, Mr. Bueermann said. A guardian agreement also can be drawn up between two advisers or between an adviser and trusted employee. It would allow someone to step in and run the business as a guardian until an ultimate successor is found. If a spouse is licensed but is not an adviser, that could be a quick, though nonbinding, solution, he said. The best answer is to craft a buy-sell agreement that is binding and funded, but that typically takes more time if the adviser doesn't already have a trusted partner, Mr. Bueermann said. All these plans should be reviewed once a year for any necessary updates. Following this road map, advisers at least will have the basics in place — and that's really the goal, he said. “In the case of continuity plans, I think that advisers try to be perfect when what they really need to do is just something,” Mr. Bueermann said. ■