Whether it's a pandemic, compliance crisis or the death of an advisor, experts outline ways to build a robust continuity plan
Unless you are the World Health Organization, Bill Gates or Steven Soderbergh, the director of Cantagion, it’s unlikely you expected COVID-19. Most advisors, understandably, did not predict a health crisis as the trigger to end the longest bull market on record.
As a result, an often unheralded area for finance professionals has subsequently been thrown into the spotlight: business continuity. How does your business carry on when a major event happens? Who picks up the pieces if one of the partners falls sick or dies? How are clients looked after?
These are questions up for debate during Business Continuity Awareness Month and issues that FindBob, a technology company which encourages better transition behaviour, has placed at the centre of its series of webinars.
Founder and CEO Roland Chan believes the current pandemic has exposed weakness in the industry and that now is the time for advisors to invest in building robust continuity and contingency plans that will protect themselves, their business, loved ones and clients.
This includes succession planning, which enables an advisor to build an organization that allows them to exit the industry when and how they want, and business continuity, which deals with all the events that could stop you from operating your practice.
The worst situation Kim Siegers-Robinson, partner at Park Place Advisory, has experienced was when a solo advisor in her 60s was deemed mentally incapacitated and had no power of attorney, meaning the government stepped in to take over her business.
Her gradual mental decline made the situation difficult to manage and after a series of issues were logged by clients, her licence and contracts were pulled. However, she didn't fully comprehend what was happening and continued to see clients. The business unsurprisingly spiralled downwards and Siegers-Robinson was forced to find a buyer, which was facilitated by the government.
The lack of a solid continuity plan had a devastating effect – on the business’ valuation and the clients. The price ended up being 70% off market rate but the biggest cost was on relationships.
Siegers-Robinson said: “The worst thing is that the legacy that advisor had built through those relationships over 30 years [was ruined] … it's not a nice way to end. The advisor would never have wanted that to happen but, unfortunately, you don't know that's happening to you until you are in it.
“This advisor did have insurance and sometimes advisors indicate to us that they have insurance, ‘so I’m great’. She had insurance and it didn't rescue her business. There was no lovely ending to the story – there are just lessons we can learn. I would encourage every advisor to review their plans and look through that lens of mental incapacitation and think, if my partner or myself hit that scenario, what would you do?”
David Gray, partner at consultancy firm Advisor 21 and former VP at Sun Life, drew on the Twin Towers terrorist attack as an example of how businesses that did not have a continuity in place failed to understand how to operate the next day. He stressed how everyone has to know the action they need to take, so they can immediately get back up and running.
“As they say, never let a good crisis go to waste,” he said. “We are now in a position, whether you are a manufacturer, distributor or advisor, where it's a case of what do I do tomorrow to continue doing business? It's absolutely critical that you understand what that process is.”
So what goes into a continuity plan? Bob Labrecque, national director, succession planning at Manulife, said he lays it out as a three-step process. The first is drafting the plan, then it’s about having all the legal documents in place, and the final step is communicating that plan with stakeholders.
He said: “It's really important to sit down, discuss that plan with everyone involved and make sure to answer any questions because when I've been involved in situations when something happens unexpectedly to an advisor, timing is critical.
“As much as we need to make a process, we need to communicate with clients very quickly to try to ensure that we can transfer as much of the business as possible. The more time goes on, the less clients are available for transfer because they start to migrate away from the book and go elsewhere.”
Kim Siegers-Robinson added another step before this process even begins. She believes the heavy lifting is done before you have a plan. This involves identifying all the triggers that can derail your business to create a situation where it’s interrupted. This may be the death or disability of an advisor, or a flooding or compliance disaster.
She said: “This pre-thinking is important. When we work with our clients, we send out a pretty comprehensive document where they assess the probability and magnitude of these issues.
“Then writing it down is pretty simple because you've thought through all the elements and know that you have something you can go to your lawyer with and say, ‘this is what I need you to write up’ versus the standard template that they're going to give you.
“Lastly, there's a lot of direction needed that will never be in a legal document. You should have a checklist to follow that you can pull out and use during times when these issues come up. We're all dealing with one now, but there are many others that can hit a business, so it's important to be prepared for that.”