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'I watched their businesses disintegrate'

Do you have a succession plan in place? Excellent. Now pull it out and look again. It might be time to start over.

“It’s important that every company reevaluate their plan, particularly as time goes by,” Creative Planning CEO Peter Mallouk told me during a recent visit to Financial Planning’s offices in New York. “What you want changes. And, as your firm grows, what you have to do also changes.”

Peter Mallouk headshot 3 1 19

Has the practice grown or shrunk? Has your hand-picked successor moved on? Have you hired another promising candidate? These are all good reasons to review the documents again. For those who don’t yet have a plan, or have a rudimentary one, consider what five or six hours now could save you in the future.

“I’ve seen peers — who had firms that were $400 million or $500 million — die unexpectedly at young ages and I watched their businesses disintegrate,” Mallouk told me. “That’s not even a slight exaggeration. That’s the most common outcome.”

The former estate planning attorney recommends buy-sell agreements, particularly for firms with more than one partner. When a co-founder passes, Mallouk told me, the surviving partner may believe the business is worth very little, but the former founder’s spouse may disagree.

“It’s very, very important that, if you have a partner, you have a buy-sell agreement that addresses what’s going to happen — not just in the event of a death, but if there’s a physical or mental incapacity, so the disadvantaged party isn’t having to negotiate from a position of weakness.”

Young advisors, too, should be prepared for every eventuality, says contributing writer Donald Jay Korn, the author of “How to keep 'unexpected accidents' from derailing a succession plan.”

“Everyone should be concerned about injury, divorce and departure for greater opportunities, regardless of whether they paid much attention to their own retirement plans or mortality,” Korn tells me. How to start? Perhaps it’s no surprise Mallouk, given his former profession, recommends hiring an estate planning attorney.

“Then I would get tax advice from a CPA to make sure a buy-sell is structured in a way to minimize taxes,” Mallouk adds. “It’s sort of a team approach.”

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