What happens if your financial advisor dies? Or quits, falls seriously ill, retires, or moves overseas…
It’s your money.
But it may be managed by someone else. Your financial advisor.
He or she may be the one determining your portfolio’s asset allocation, picking specific investments, and calling the shots on trades.
That means you have to be confident that your advisor will do a good job for you.
How to Pick Your Financial Advisor
When interviewing advisors, here are some critical things to ask, and get good clear answers.
Are you a fiduciary? This means he or she must put your best interest ahead of their own. Certified Financial Planners (CFPs) are one example of fiduciary advisors.
How are you compensated? Some advisors charge by the hour. Others charge a flat annual fee. Yet others charge a so-called “Assets Under Management” or AUM fee. This is a percentage of your portfolio value that your advisor charges each year. Another possibility is that the advisor may be paid a commission for putting your money in certain investments. You want to avoid the commission model since that puts your interests and those of the advisor at odds – their commission comes out of your investment dollars, so the better they do, the worse you do. Ideally, and especially once your portfolio becomes sizable, you also want to avoid AUM-based models. After all, managing $2 million isn’t significantly more difficult than managing $1 million, so why would you want to pay double the fees? However, sometimes the AUM percentage drops as the portfolio grows, making it less of a bad deal. (Learn different ways you can pay a financial advisor.)
Lawrence D. Sprung, Founder, Wealth Advisor, Mitlin Financial comments, “It is vital that you understand how your advisor is being compensated. The three predominant methods are covered above, but in some cases, advisors use a combination of the three, not just one. No method is inherently better or worse than the others, but you should fully understand your prospective advisor’s compensation to start a long-standing relationship on the right foot.
“In addition, it is just as important to know what services the advisor and firm provide you for that compensation. For example, a firm using the AUM model may sound expensive if they charge more than 1 percent, but if they provide you with many more services over and above simple asset management, it may be a well-priced service. On the flip side, paying more than 1 percent for just asset management may not be good pricing for the client.”
What long-term returns have you achieved for people like me? Sure, they all say that past performance doesn’t guarantee future results, but if you specify that you’re talking about the level of risk that you’d be comfortable with, you should be able to compare such returns with those of other advisors. Then, ask how they managed to achieve those returns and listen for the types of risk they would take with your money.
How long have you been doing this? Especially if you have a sizable portfolio, it’s easier to trust someone who has been managing investments for a long time, through multiple market cycles. That way, you know that their historic performance isn’t solely due to a long bull run. You also know that they experienced enough down markets that they’ll be comfortable navigating client portfolios through the next one.
You want to listen to the answers, but along with getting positive answers, you want to listen for their clarity – does the advisor tailor their wording to how you listen and learn (this is sometimes known as a good personality match)? You also want to pay attention to how speaking with the advisor makes you feel – do you have a gut feeling that this is someone you can trust? Someone who asked enough questions of you to understand your situation, your goals, and how well you’ll tolerate risk?
Once you pick the right advisor, you’ll likely stick with them for decades since they will become your trusted financial mentor, helping you navigate the financial ups and downs of your life, major life events, planning for your retirement while living comfortably in the present, etc.
In time, your advisor may even become more than a friend, almost a family member.
Another Important Question: What If Your Advisor Dies? Or Retires? Or…
Given all the above, there’s a critical question to address – what happens if your advisor gets hit by the proverbial bus?
And even if he or she doesn’t die, what happens once they retire (and how far into the future is that likely to happen)?
To prepare for such eventualities, you have to ask your prospective (or current) advisor about his or her succession plan (it may be called a continuity plan instead).
Does he or she have one written up? You want to read it and make sure you understand it and are comfortable with it.
Some important details include the following.
Who takes over from the advisor? Is it someone from their team or a trusted colleague in a different firm? If the latter, you may want to dig a little deeper to make sure that successor is a good fit for you; that they have enough relevant experience; that it’s someone you feel you can trust; who’s responsive; that you can easily communicate with them, whether in person or by Zoom; and that they have enough capacity so they won’t be overwhelmed by a sudden influx of clients “inherited” from your current advisor. Most importantly, you want to know that the successor will also be a fiduciary.
Is the successor affiliated with the same firm and/or broker/dealer? Ideally, the answer will be yes, which makes the transition much simpler and quicker. If not, there will be a lot of paperwork to file, you may no longer have access to the same investment options, and there may be tax implications if your assets have to be sold and new ones purchased.
How often does your advisor update their succession plan? It’s best if he or she does so annually, though doing so less frequently may be ok if he or she at least verifies that their proposed successor is still active, still in good standing, and can still take over all of your advisor’s clients at once.
When does the advisor anticipate calling it a career? If you’re relatively young and have decades of investing ahead of you and decades more of retirement, you may not want to hire an advisor who expects to retire in a year or five. If the advisor’s planned retirement is in less than a decade, that makes their continuity plan even more important.
Jason Gilbert, Founder and Managing Partner, RGA Investment Advisors, says, “A good succession plan goes beyond simply naming a successor—it ensures continuity in the relationship, service quality, and overall approach. Clients should not only know who will take over if something happens to their advisor, but also be familiar with that person long before a transition occurs. A smooth transition isn’t just about logistics and paperwork—it’s about ensuring the client-advisor relationship remains intact and the new advisor continues to understand and support the client’s goals.”
Sprung agrees and elaborates, “Rather than meeting with and getting to know the advisor who will be the successor after the initial advisor is gone, I would suggest that a firm with a solid succession plan should have a team working with the client. This allows the client to get acquainted with the potential successor ahead of time before anything happens to the primary advisor. I believe waiting until the primary advisor is gone puts the client in an awkward position not knowing who they would be working with in those circumstances.”
He adds, “The largest area of concern for clients should be when working with an individual advisor who has perhaps one support staff person who is not an advisor. In this scenario, what is their succession plan? The statistics show many of these advisors do not have a succession plan, which could put the client in a difficult position should something happen to their advisor at a critical point in their financial life.”
What Happens When Your Advisor Is Gone?
Assuming your financial advisor isn’t a scammer or fraud (like Bernie Madoff was), he or she will never actually hold your financial assets.
Instead, a third-party custodian, usually a large investment bank or major brokerage, will hold the assets and execute the trades that the advisor decides will be in your best interest (assuming the advisor is a fiduciary, as mentioned above).
This means that even if your advisor retires, quits, moves overseas, or dies, your money will still be yours.
You just want to know that if your advisor is gone, you’ll have a good substitute who’ll “come off the bench” and manage your money.
Knowing in advance who the successor will be makes it a less jarring experience if and when he or she contacts you to notify you that your old advisor is gone, and they’ve taken over.
When that happens, you want to meet with this new person so they get a clear idea of your goals, desires, and risk tolerance, allowing them to do a good job for you; and so you can get to know this new person and his or her investment philosophy as it applies to your portfolio.
If you don’t like this new advisor, if he or she is part of a team, you can ask to work with a different team member. If the advisor is a solo act, you’ll need to find someone else.
One thing that can help when deciding if you’re comfortable with the proposed successor (or that can help you pick among several options) is to make a list of the qualities you especially appreciated about your old advisor and see if the new prospective advisor(s) offer similar qualities.
Does Your Advisor Have a Succession Plan?
Your financial advisor will hold your financial future, including your most important goals and dreams (at least ones that require money) in his or her hands.
That makes it crucial not only to pick the right advisor but also to make sure they have a solid continuity plan in place that will seamlessly hand you over to another advisor who will also be a good fit for you.
Are You Ready to Hire a Financial Advisor?
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Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.
About the Author
Opher Ganel, Ph.D.
My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals. Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.
