LPL shines a spotlight on succession planning


With an estimated 70% of independent financial advisers operating without a formal succession plan in place, you have to give LPL Financial credit for its new Assurance Plan, which essentially checks the box for those advisers who can’t seem to move succession planning off the back burner.

The Assurance Plan is simple and straight forward enough to get the attention of any LPL adviser currently working without a safety net, and LPL estimates that about 60% of its 16,700 advisers do not have a succession plan.

For LPL, this is a no-lose situation.

The company isn’t making public the cost of the plan beyond describing it as a “nominal monthly fee,” which one should assume they researched enough to know an adviser’s pain threshold when balancing no succession plan against no longer having to worry about not having a succession plan.

According to Jeremy Holly, senior vice president and head of adviser financial solutions at LPL, the one- and three-year Assurance Plan contracts protects the advisory business in the event of an “unplanned exit.”

In addition to an annual business valuation, the plan offers to maintain the business and communicate with clients while finding a buyer as efficiently as possible, ideally without any sudden or extreme drop in valuation.

“It looks like term life insurance for your business, and any succession plan you have would supersede this,” Holly said. “This is a backstop. It gives business continuity in the case of death or incapacity.”

According to Holly, if there a “triggering event, we execute the plan.”

That involves an upfront payment to the beneficiary while LPL “moves quickly to sell the business, which is critical because we don’t have an adviser in place at that point.”

It all sounds wonderful, especially to a potential beneficiary who might not want to deal with an advisory business while also dealing with the sudden death or incapacity of the business owner.

But the other side of this is that LPL has already been providing much of this catastrophic-type coverage for LPL advisers without charging a “nominal monthly fee.”

Except for the annual valuation, which will appeal to a lot of advisers, anytime an LPL adviser dies or is otherwise unable to continue working, Holly said there might be some “value erosion,” but LPL moves quickly to find a buyer for the business.

“Right now, it’s not a formal process,” he said. “There are cases when if you don’t move quickly the business will dissolve and the family gets nothing.”

Even though LPL estimates that 60% of its advisers don’t have a formal succession plan, Holly said the appeal of the Assurance Plan could spread to some advisers with succession plans.

“If you have a succession plan, you could still benefit from this,” he said. “There are a lot of advisers with something on file that they may not feel great about.”

Good for LPL for enticing advisers to get something on paper that protects the business and the clients, and good for LPL for earning a fee for something they’ve already been offering for free.

It is now up to the advisers to decide on paying a monthly fee for the Assurance Plan or hope LPL doesn’t drag its feet when cleaning up after a non-Assured advisory firm.

The third option for an adviser would be to develop a formal succession plan.

“At the very least, hopefully this will create awareness on creating a succession plan,” Holly said.

Here’s to hoping programs like this nudge more advisers to realize they need formal succession plans, and that those plans don’t have to be complex or costly.

Written by Investors Wallets

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