Operating a wealth advice practice is both a satisfying and rewarding pursuit, but one sometimes fraught with enormous complexity. Every day wealth advisors are faced with critical business decisions that can affect their bottom lines and have far-reaching implications for the success of their practices. In order to stay competitive, each of us has to keep current with the latest developments in technology, new investment products, and changes in legislation and regulation. How do I best manage my practice to make it a success and attract and retain the clients I want? What can I do to stand out from the competition?
This occasional column from the Wealth Advisor Institute is designed to help you find the answers you need. Our goal is to provide "advice for the advisor." To kick off this column, I consulted with members of the WAI Advisors Council to come up with answers to the following, frequently asked questions.
1. What is an appropriate emergency/disaster recovery plan for my practice?
No matter how small or large your financial services business is, you need to develop a business impact analysis to identify what your business needs to do to protect itself in the face of a disaster. Large companies often hire risk managers to handle this task, but small businesses can do the analysis and planning on their own. If you don't have an employee to help you carry out your plans, consider pairing up with another professional in your area.
Here are some of the steps you should consider in protecting your practice:
o Set up a written emergency response plan and train employees to implement it. Make sure your employees know whom to notify about the disaster and what measures to take to safeguard themselves and limit property losses. Keep one copy of the plan at work and one copy at home.
o Write out each step of the plan and assign responsibilities to employees in clear and simple language. Practice the procedures set out in the emergency response plan at least once a year.
o Keep duplicate records. Back up computerized data files regularly and store them off-premises. Keep copies of important records and documents in a safe deposit box and make sure they're up-to-date.
o Compile a list of important phone numbers and addresses. Make sure you can get in touch with key people after the disaster. The list should include local and state emergency management agencies, major clients, your IT person, attorney and CPA, financial institutions, insurance agents and insurance company claim representatives.
o Decide on a communications strategy to prevent loss of customers. Post notices outside your premises; contact clients by phone, email or regular mail; place a notice in local newspapers. Let your clients know about your plan so that they'll be comfortable that their interests are in good hands--even in an emergency situation.
o Identify critical business activities and the resources needed to support them. If you cannot afford to shut down your operations, even temporarily, determine what you require to run the business at another location.
o Protect computer systems and data. Data storage firms offer offsite backups of computer data that can be updated regularly via high-speed modem or through the Internet. Using a Web-based client management system can greatly enhance your operational capacity since you can access your data from anywhere, 24/7.
Also take time to review your insurance plan and make sure you have sufficient coverage to pay for the indirect costs of the disaster--the disruption to your business--as well as the cost of repair or rebuilding. Most policies do not cover flood or earthquake damage, and you may need to buy separate insurance for these perils. Be sure you understand your policy deductibles and limits.
Your disaster recovery should include a detailed review of your insurance policies to ensure there are no gaps in coverage. You may want to consider business interruption insurance and extra expense insurance if the size of your business warrants it.
2. I'm thinking about partnering with another advisor. Beyond his skill set, how should I profile his personality and work manner to determine if there is a good match?
The first step is to identify potential partners. Make a checklist of the attributes you're looking for: age, gender, location, size and type of practice, professional qualifications, and so on. Don't make the mistake of trying to select someone who is just like you;finding people who complement your work style and have strengths you don't have can create synergies between the two of you. Let your friends and peers know what you're looking for and ask them for recommendations.
The next step is to conduct due diligence. Several face-to-face meetings--one in your office and one in the prospective partner's office--will help each side understand the other's perspective. Be sure to verify every potential partner's credentials, registration and education. Review his employment record and any past disciplinary problems. Try to learn more about your potential partner's business model, as well as his goals and aspirations for his own business.
Consider working together in the same office, but as separate practices at first. The best way to determine if a potential partner is a great long-term solution is to work closely with him--day in and day out--before making a more permanent commitment. No amount of profiling can substitute for first-hand observations and experience.
Finally, talk to your business attorney about the best type of legal entity to support your future business needs and goals. Choosing between a partnership, corporation (S-corp. or C-corp.) or limited liability company is very important--not only from a legal and tax perspective, but also for creating a flexible structure for multiple owners.
3. Growing attention is being given to the area of selling an advisory practice. However, what should I do if I want to work for several years beyond normal retirement (perhaps, on a reduced schedule) as long as it is fun, lucrative, and I'm able?
Your choices will depend, in part, on the size and type of financial services practice you own, and the skills and qualifications of your current staff. Succession planning is all about enjoying your practice and the financial lifestyle you've created for yourself as you plan and implement an exit strategy, whether the plans are long-term or short-term.
As a sole practitioner, you can begin to groom a successor years ahead of time by turning over more and more of the workload to a key employee. Working a reduced schedule actually gives your employee a chance to step up and take on more responsibility, and it gives your clients time to become comfortable with your eventual replacement. You might consider letting your employee buy a small or minority interest in your business so that your clients can continue to work with an owner as you work less and less.
If you don't have an employee to succeed you, consider selling a part of your book to a younger advisor who can "learn the ropes" by working with the bottom 20 percent of your client base. If all goes well, this person can take on the role of your successor in years to come by acquiring additional client accounts from your business. The best part of this strategy is that you remain a 100 percent owner of your business, and you get to focus on the clients you choose to work with.
If you're a sole practitioner, it might make sense to enter into a cross-purchase agreement with another local financial services provider. This succession planning method provides for emergency backup in the event you're unable to return to work due to death or incapacity. This succession planning partner can also agree to mandatory acquisition terms in such cases, providing your family with the value of the business you've built.
Drew McCoy is chairman of the WAI's Advisors Council, www.wealthai.com.
