Episode 42: Succession Planning Considerations

On episode 42 of the CCO Buzz we have  a special guest that we haven’t heard from in a while, CEO of Core Compliance Michelle Jacko. She’s here to discuss key considerations when it comes to succession planning.


CCO Buzz: Hello and welcome back to the CCO Buzz. Sorry we missed last week, we are just really slammed with the upcoming deadlines and helping clients with their Form ADVs.  Don’t worry, we’re back this week with a guest we haven’t heard from in a while, CEO of Core Compliance Michelle Jacko. She’s here to discuss key considerations when it comes to succession planning.

With that, take it away, Michelle!

Michelle Jacko: Hello! This is Michelle Jacko, CEO of Core Compliance and Legal Services. And on this week’s CCO Buzz we will be discussing the importance of onboarding and succession planning.

One of the newest areas that the SEC is focusing on, particularly for smaller investment advisers, is whether or not that adviser has a succession plan in place. Recent deficiencies that our firm has seen has cited the adviser with failure to have a succession plan in place, is breach of the adviser’s fiduciary duty. The reason that the staff is making this analysis is because in the event that this small firm’s business owner, who often is a wealth manager and client service representative, finds him/herself in a position where they can no longer service client accounts – then their clients will be, unfortunately, harmed by this event.

In examinations that Staff is asking, whether or not, such persons – particularly in senior management roles in these smaller firms, have developed a succession plan in the event of a short, medium, or long-term absence from the office. Many times the SEC is finding, that the firm is not taking into consideration cross-training or what would happen the int eh event that an unfortunate event, such as a car accident or medical condition would keep such individuals absent from performing his/her tasks and therefore, not paying attention to client accounts and movement of securities within those accounts. Whether or not they’re performing well or poorly, based on market conditions.

So, we have to take a proactive step and plan for the unexpected. We need to think about in the event that an advisor who is in a position of authority and control, particularly in the wealth management area, what are they going to do in the event that they are absent from the office for 30 days? What about 6 months? And how about over a year?

Certain conditions, such as onset of dementia, unexpected death or disability, does cause folks to be absent from their office. And so, who would take that person’s position? In certain cases, the advisors are reaching out to fellow colleagues in the industry that have a similar model of business. So that, they have an agreement in place that would allow each other to serve as each other’s back-up, should the event that such an unfortunate event occurred that would require a mid or long-term absence from the office.

Building out these contingencies is part of your fiduciary obligation. And as such, what we are also seeing firms discuss is, whether or not, in the case of retirement or unexpected absences of senior executives, particularly the owners of those firms, have they thought about their succession plan for business transition?

If there is someone who is going to buyout either the firm or the firm’s assets, who would be a potential purchaser? Has Key [person] man Insurance been discussed? Has tail coverage been considered? What is the valuation of the business? In many cases we are seeing clients that wish to sell their practice to employees, but the fundamental question remains…

Have employees been approached as to whether or not they have an interest in becoming an owner of that company? Do they have the wherewithal to purchase the firm at the price for which it is valued?

So it is important to think about these and other considerations as the senior executives are starting to near retirement. There’s never too early of a time to start planning for Succession Planning and Core Compliance and our consultants can assist you in navigating that journey. For more information, please contact us either on our website at www.corecls.com or at (619) 278-0020. Thank you.

CCO Buzz: Well that’s it for this week’s episode. If you’d like additional information, please check out our website at www.corecls.com. You can also follow us on Facebook, LinkedIn or Twitter @CoreCLS. Thank you and we hope you tune into next week’s episode of the CCO Buzz.




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