Julia Sexton is the Director of Strategic Organizational Planning at Succession Resource Group, where she leads the firm's compensation design, equity sharing, employment agreement, talent strategy, and contingency planning programs. A CVA since 2019, Julia has completed thousands of valuations and supported more than 200 successful mergers over her eight-plus years in financial advisory consulting.
David Grau Jr. is the founder and CEO of Succession Resource Group, a succession and M&A consulting firm for financial advisors. A published author, U.S. Navy veteran, and one of the industry's most recognized voices on advisor M&A and next-generation building strategies, David has delivered more than 200 presentations at leading financial services firms nationwide.
Parker Finot is the Director of Transaction Advisory Services at Succession Resource Group. With 13 years in the financial advisory space, Parker has supported more than 300 transactions and helped facilitate over $40 billion in transferred AUM through succession plans, acquisitions, and strategic partnerships.
Kristen Grau is the Executive Vice President of Succession Resource Group, where she leads the firm's Seller Advocacy program. A CPA, CVA, and CEPA with over a decade of experience as a business appraiser and sell-side adviser in financial services, Kristen has helped sell and transition more than 100 advisory businesses ranging from $40 million to $1 billion in AUM.
Ryan Grau is the Director of Valuations at Succession Resource Group. He has been consulting with financial advisors on valuation, deal terms, and M&A strategy since 2011 and holds both the Certified Valuation Analyst (CVA) and Certified Business Appraiser (CBA) designations. Ryan's team completed 316 valuations in the most recent 12-month period.
What Happens to Your Advisory Practice If You Can't Show Up Tomorrow?
Most financial advisors say they have a contingency plan. Far fewer have one in writing. When David Grau Jr. asked a room of 65 to 70 advisors whether they had a contingency plan, about three quarters raised their hands. When he asked who had a written plan on file with their custodian or broker-dealer, the number dropped to less than a third. A contingency plan covers the exit you don't plan for: death, permanent disability, temporary disability, or even the loss of your license.
In this episode of the SRG Exchange, Julia Sexton, who leads SRG's contingency planning service, is joined by David Grau Jr., Parker Finot, Kristen Grau, and Ryan Grau. Together they explain how a contingency plan differs from a succession plan, walk through the three most common agreement structures, and share what they've seen go wrong when a plan is missing or out of date.
The panel closes with the practical steps that make a plan work: set a value someone can actually execute when you aren't there, update the agreement every year, tell your team, partner, and clients that the plan exists, and structure the sale so your estate is taxed at capital gains rates rather than ordinary income.
Key Takeaways
- Contingency planning and succession planning solve different problems. Succession planning is the intentional, multi-year transfer you choose. Contingency planning covers the exit you don't choose, so your clients, team, and family aren't left to figure it out.
- Triggering events go beyond death. Plans typically cover death and permanent disability, and many also address temporary disability and loss of license. Ryan points out that a family emergency, like a spouse's illness or a child's accident, can pull you out of the practice too.
- There are three common structures. A one-way agreement names one buyer for your practice. A reciprocal agreement has two advisors agree to cover each other. A retainer agreement brings in a firm like SRG to find the best buyer at the time of the event, based on priorities you set in advance.
- A retainer agreement keeps your options open. Kristen notes that a successor you already like can still be part of the buyer pool. Because SRG's sell-side team is paid based on purchase price, the goal is the best terms for your family, even when a broker-dealer allows as little as 20 days and lenders often need 45 to 60 days to underwrite a loan.
- Stale agreements create real risk. The panel shared cases of outdated 2x revenue multiples, contingency partners who had retired or passed away, and right of first refusal clauses that blocked a better sale. Review your partner, multiple, and terms every year.
- A stated multiple is faster than a valuation at the time of the event. Ryan explains that once the data is in hand, a valuation can take anywhere from a week to 30 days, and pulling that data is hard when you aren't there. A stated multiple tied to a recent valuation, with clear definitions of the revenue or earnings it applies to, can be put to work right away.
- Use deal terms, not a discount, to handle attrition risk. Ryan recommends valuing the practice at market and letting the deal terms adjust for clients who don't stay. Julia adds that when a plan is in place, attrition in these deals tends to be low.
- Tell people the plan exists, and mind the taxes. Share it with your partner, team, custodian or broker-dealer, CPA, attorney, and family. David cautions against revenue-share arrangements, which can turn the sale into ordinary income, and recommends a buy-sell agreement that can qualify for capital gains treatment.
Frequently Asked Questions
What is contingency planning for financial advisors?
Contingency planning is a written plan for what happens to your advisory practice if you can't serve clients because of an unplanned event, such as death, permanent or temporary disability, or loss of license. It names who takes over, how the practice is valued, and how the purchase price is paid, so your clients, team, and family aren't left to sort it out.
How is a contingency plan different from a succession plan?
A succession plan is an intentional, proactive transfer of your practice, often to your own team over several years, on a timeline you choose. A contingency plan covers the exit you don't choose. Many succession plans include contingency terms, but a standalone contingency plan is what protects you while you're still building toward that exit.
What is a contingency retainer agreement?
A contingency retainer agreement brings in a firm like SRG to sell your practice if a triggering event happens. You set your priorities for a buyer in advance, and the firm finds and vets buyers at the time of the event. It works well if you don't have a named successor yet, and a successor you already like can still be part of the buyer pool.
How is the purchase price set in a contingency agreement?
Most agreements use one of two methods: a valuation performed at the time of the triggering event, or a stated multiple or value written into the agreement. A stated multiple tied to a recent valuation is faster to apply when time is short, as long as the agreement clearly defines the revenue or earnings it applies to.
How often should advisors update their contingency plan?
Review it every year. Check that your contingency partner is still the right fit and still practicing, that the valuation multiple is current, and that the terms and triggering events still match your situation. An agreement that sits untouched for ten years can leave you unprotected or tied to a price that no longer reflects your practice.
