Protect the Value of Your Financial Business

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The latest news, updates, and insights, from LPL leaders on what's happening in the industry and at the firm. This is the LPL Share-Cast.

Samantha Davison:

Hello, and thank you for tuning in to this episode of the LPL Share-Cast series. I'm your host, Samantha Davison. Through this series, we're bringing you news and insights from LPL leaders and partners to help you run your business, day in and day out. Did you know that 26% of advisors who will retire in the next 10 years do not have a succession plan? Do you have one? Today, we're talking about the importance of protecting your family, your business, and your clients, and how you're able to do that with LPL's Assurance Plan. Carter Gibson, Vice President of Financial Solutions is here to talk about that. Carter, thanks so much for being here.

Carter Gibson:

Thanks, Sam. Glad to be here.

Samantha Davison:

So let's begin by talking about that statistic. Just amazing that 26% of advisors who will retire in the next 10 years do not have a succession plan. I guess it's like people who don't have a will. What I think when I hear that is "what if something unexpected happens?" What happens, Carter?

Carter Gibson:

Yes, Sam. I think the first thing is just reacting to that stat and thinking about the fact that 26% of advisors have planned, which means 74% have not. So two-thirds, almost three quarters of advisors don't have that exit plan in place which is crucial to the business. It's crucial to protecting their legacy. It's crucial to protecting their clients, and it's also crucial to protecting their families. So when you hear something like that, you immediately wonder "what can we do?" How can we step in and help support a huge need like that? So that's where we do have succession planning. What we heard from advisors was, hey, we need something that helps us in the call it "get hit by the bus" scenario. If the worst thing happens, how can we step in and protect our business?

Samantha Davison:

LPL offers what's called the Assurance Plan. Explain that to us.

Carter Gibson:

You could think of it not quite like insurance. It's definitely not an insurance product. Because advisors have access to things like term-life insurance which can help protect their life or health insurance to protect their health. But there's nothing that could really protect their business. So the genesis of the Assurance Plan was more thinking through, "okay, how can we create something that's simple, that's easy and straightforward, and effectively helps protect the advisor's business?" That's what the Assurance Plan really is - it's designed to help facilitate the orderly transition of your business should the worst happen. And again, looking at the stats where you have only 26% of advisors that have a plan in place, there's just a huge need out there. What we see is that advisors need something that's easy and something that's effective. So that's what the Assurance Plan was designed to be.

Samantha Davison:

So Carter, let's talk about the details of this plan. Talk about the benefits. I know people want to know. What does it cost, and what will advisors get with this plan?

Carter Gibson:

Advisors get three key benefits from this plan. The first is that LPL steps in to immediately help run and operate the business; our internal help desk can support our trade desk can support. We're there to stand by to make sure that your clients continue to be served. Secondly, LPL can facilitate the sale and the monetization of your business and the transition to that next advisor. There's two ways that advisors can structure that through our plan. The first is they can have an identified partner, and we'll help manage that transition to that new advisor and the sale of the business. Or second, if there's no identified plan which is the majority of our Assurance Plans - there's no identified buyer or there's no identified succession partner - we'll go to the broader network of LPL. And that's one of the great benefits of being at LPL where we have 20k advisors; there's probably a really good fit out there that we can help identify and then manage the sale and transition of that business over to that new advisor.

Then third, and maybe the most important benefit that we hear from advisors, is the guarantee. So rather than having an open-ended outcome that may or may not happen, LPL guarantees a minimum amount for the transaction. We guarantee one and a half times the revenue over the last year for the business, so that way you're estate and your family know that there's a minimum amount of protection. But what’s nice is that's only a minimum amount. We're going to go out and work to find the best possible fit and sale for your business.

So as we look at the data from the transactions where we've had a plan trigger, unfortunately - but fortunately they had the plan - we went out and successfully completed the sale and transition of their business. In all instances, it was above that guaranteed amount, and that is fully passed through to the advisor. LPL is not keeping anything; we don't seek to monetize those unfortunate life events. It's all about helping the advisor transition their business and all about helping those clients get to that next advisor where they can continue to get the great service and care that they need and deserve.

Samantha Davison:

It really feels like it's giving advisors peace of mind, not only for their business and their clients but for their families, as well. Let's talk about the cost because people are probably wondering, "okay, well how much does all of this cost for me?"

Carter Gibson:

Absolutely. And that was something where we wanted to be really thoughtful around - if LPL can step in in a big way and help support and facilitate the transition, at the end of the day, we don't want to own the business. We want to facilitate the transition to another advisor. So the primary activity for us is really managing the plan. What's great, being at LPL, we have a large scale of over a thousand advisors using the program currently - that helped us to really push the cost down. Right now, it ranges a little bit, but you could think of it as somewhere in the zone of a hundred dollars a month. So something that's phenomenally cheaper than even what you would see if you were to buy something like term insurance but again that only protects your family and monetizes something in the event of your death. It doesn't help facilitate the transition of your business. So we're doing all of that for roughly a hundred bucks a month.

Samantha Davison:

Wow. It sounds like a very small price to pay for the peace of mind and the security for your clients and your family.

Carter Gibson:

Absolutely. That's one thing I like to say sometimes when I'm talking to the clients or to our advisors is, "sleep well tonight and that will only cost you a hundred dollars a month."

Samantha Davison:

So talk about this - if someone passes away unexpectedly, what happens to their business if they don't have a plan in place? Is there anything that LPL can do?

Carter Gibson:

There's some things, and it really depends on what's in place before the advisor passes away or becomes incapacitated. If you have a written formal plan per regulation and policy, then we can go execute. That gives you a lot more options. That's why the succession planning component and having something like the Assurance Plan in place ahead of time is so crucial because that then gives directives and options. If you don't have something in place, then it becomes a lot more murky and the timeline gets extremely long. It's subject to things like what state you're in and a state and tax code and legal code and the process that you may have to go through with the probate or other things. Now your will may address how you want to dispose your business, but at the same time, your executor probably isn't able to operate your business legally or regulatory.

So there's lots of nuances to consider. What we typically see from a client perspective is that they do need service and support. While they may have a really tight relationship with the advisor and the family and friends at the same time they need that financial support. As time goes on, those clients, naturally, they're going to seek a new advisor because they need to to meet their own goals and needs. We see these processes where there's no plan in place - they can take up to six months to fully complete. How long is a client going to maintain with that advisor, with his existing practice or her existing practice, if there's no one there. Six months - that's a really long time.

Samantha Davison:

That is a long time. So we know from talking to advisors that they are obviously incredibly committed to their clients and to their business, but why do you think some people do not have a plan in place?

Carter Gibson:

That's a really interesting question that we've tackled a whole bunch of different ways to try and understand, because it is like when you see the need and you wonder, "okay, well why isn't there a great amount of advisors leveraging something like their small business owners in general?" What's interesting is we look across the industry or outside of our industry even - this is a problem everywhere. What's funny is someone sent me a report, and it was on the cattle ranching industry and how they have a succession problem. You could have literally taken out the name of the cattle ranch and stuck an advisor, and it would've been the same report. So it's a problem across all kinds of industries. What we hear candidly is that a lot of it’s just inertia.

Because well "I'm still alive and I'm healthy, nothing bad has happened, and maybe I have a term insurance policy or something, so I'm going to keep going." But then we dove in deeper because inertia is the high-level answer. The more detailed, nuanced answer was, "the reason I'm not taking action is because I don't have a great option and I don't have a great roadmap, and it's not clear to me what I should even do or where I can go to get that support. So as an advisor, as a small business owner, I already have all these other demands on my time. And when you tell me I need to go figure out a way to find the succession partner, the continuity partner for my business, figure out what to do with my clients and my staff, and how to transition that and how can they pay for it," All these other questions just became really complex and really hard.

So that comes back to why we created the Assurance Plan. How can we take all that learning from talking to our advisors and say, "they need an easy way to get this in place. Something that's not complex; something that's straightforward; something that helps manage the business, transition the business, and monetize the advisor’s practice and help them realize the value of their hard work and do it in a really quick and efficient manner." That's hearing what we heard from advisors; that's how we design the Assurance Plan.

Samantha Davison:

It sounds like you do the hard work for them.

Carter Gibson:

Absolutely. That's the benefit of being at LPL where there's so many great advisors - the primary thing is how do you find that right partner? And then how do you transition to that partner? We do these kind of things - whether it's M&A, succession planning, or assurance - every single day. We have a team of over 30 people here that focus on M&A, succession plan, and assurance and do this every day. So for us, it's something that we're experienced at, we're good at, we're focused on, and that we're continually making better.

Samantha Davison:

Before we let you go, any final thoughts?

Carter Gibson:

No, I think you hit all the main points. The one thing that I just encourage any advisor listening to this is - if you want to consider your options, reach out. Talk to us, talk to my team, whether it's M&A, succession, or assurance, we're happy to help support you and think through your planning. Talk to your relationship manager or advisor solutions. They'd be happy to help you think through some of your options, as well. At the end of the day, we just want to make sure that you're protecting what is your most important and valuable asset - your business. So anything we can do to help support you there, we're standing by and ready to go.

Samantha Davison:

Very good. Carter, thank you so much for your time and your insights.

Carter Gibson:

Thank you, Sam.

Samantha Davison:

There's a great article that explains a lot of the key points of the Assurance Plan. You can go to lplbusinesssolutions.com, there's a blog, and then go to "succession planning key benefits." It's a great article. You can also go there for additional benefits about the program and how to sign up for a consultation. As always, thank you so much for listening, and we'll see you next time.