Products January 24, 2014

Sometimes Advisers Need a Plan, Too

Global Financial Private Capital rolled out Legacy Lock and Adviser to Adviser Continuity, two succession and business continuity programs for partner advisers.
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According to Geoffrey A. Frazier, president and relationship director of Global Financial, more than two-thirds of advisers lack a business continuity plan. Advisers cite reasons ranging from insufficient time to develop a program, to difficulty finding the right successor, to inability to meet the cost of insurance or create an agreement, Frazier says.

The right business continuity plan can help protect the value of an advisory business. Adviser to Adviser Continuity helps advisers locate either an internal or external successor from the Global Financial network. Once a successor is found, they create a continuity agreement through turnkey support provided by Global Financial’s partner firms.

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The Legacy Lock program frees advisers from the need to find a successor and create an agreement. Instead, a backstop program protects the business. When an adviser is unable to identify an appropriate successor, Global Financial enters into a revocable buy/sell agreement with the adviser. Frazier tells PLANADVISER it is similar to an acquisition. Global Financial’s integration team helps with the transition, and the firm becomes the natural successor. “Advisers can lock in their most valuable asset,” Frazier says, “and it’s as seamless as possible a transition.”

Both programs include custom services for the sale and transition of advisers’ businesses. Global Financial will help select a likeminded adviser in their network who is interested in purchasing an adviser’s business, at which point they—along with Adviser Growth Strategies and MarketCounsel—will provide turnkey support in developing a mutually accepted transaction.

The programs, developed with Adviser Growth Strategies and MarketCounsel, help advisers receive fair market value for their business, Frazier states. Advisers can feel secure that their clients will continue to receive continuity of service, and making informed decisions will help protect the adviser’s clients, employees and families.

Global Financial Private Capital, in Sarasota, Florida, is an independently owned investment adviser with more than $3 billion in assets under management.

Adviser Growth Strategies LLC is a practice management consulting firm for the wealth management industry.

MarketCounsel is a business and regulatory compliance consultancy to independent investment advisers.

The Markets January 24, 2014

Risk Questions on Multiemployer Plans

When you take on investment risk, you know returns could be high or low. But what that means for a multiemployer pension plan is different than for a single-employer plan.
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A single-employer plan can manage funding deficits or surpluses, in part, by changing contributions. In a multiemployer plan, members expect contributions to be fairly stable, it is not so easy to increase them, and often, benefit accruals are cut to deal with deficits, explains Cameron McNeill, senior vice president and Canadian business leader at Segal Consulting in Toronto. But, the risk is not symmetrical, McNeill tells PLANADVISER. “If there’s a surplus, plans could augment benefits, but most won’t do that because they want some margin, or cushion, against [investment] volatility.”

“If your asset allocation has a 50% chance of leading to benefit cuts and a 5% chance of leading to enhancements, would you see that as a reasonable risk?” McNeill queries in a blog post on Segal Canada’s website. There is no standard for how much surplus a plan must have before it is large enough to convert to benefit improvements, he says. Multiemployer pension plan trustees need to be aware of the extent to which they are taking risk that is unlikely to be rewarded.

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Step one is to understand the actual chance of going above or below return expectations, according to McNeill. He says trustees need modeling to know this, and it doesn’t have to be a complex model. They can then rethink their investment and funding strategy accordingly. McNeill contends plans can take some risk off table without impacting their actuarial valuations by replacing funds that take on higher risk, with similar-return funds that take on lower risk.

He adds that trustees also need to understand how to communicate with members to change their expectations for contribution and benefit levels. He points out he does not trumpet cutting benefit accruals. “This can result in some [participants] working longer. It is best [for the plan] to move ahead knowing when folks will retire, and what [liabilities] to expect.”

McNeill believes multiemployer plans are a good pension vehicle; they nicely share risk between members and the plan itself. “But you cannot ignore what risks are there, they have to be managed and communicated properly,” he concludes.

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