Traditionally when comes to estate planning, financial practitioners would advise their clients to examine their Will and ensure their CPF nominations are done. Those with business should also consider how their business is going to continue on their demise. However, many financial practitioners do not do estate planning for their own advisory business. This is because many practitioners do not “own” their clients. It is normal for practitioners to be serving 100 families. But upon demise of the practitioner, these families will be become “orphan” cases. It is the duty of the advisory firm to transfer these cases to other advisers. However, if the transfer was done with no prior planning before the demise of the practitioner, many clients will suffer a reduction in quality of service as it is impossible to guarantee that the new takeover practitioner is up to the “task” of servicing these clients.

Today, I had a small luncheon meeting with some practitioners of other firms.  I had a conversation with a fellow practitioner from another company. The topic of “clients ownership” was brought up. Basically, this means that some FA firms allow practitioners the right of “owning” their client base while other FA firms do not permit its advisers to “own” their clients. To give example, banks’ clients belong to the bank. In theory, the Relationship Manager is not permitted to take these clients with them if the RM goes to another competitor. However, some FA companies recognize that these clients brought in by the adviser belong to the adviser. This implies that if the adviser would to leave to another competitor, the adviser is entitled to the continuation of servicing rights to these clients and at the same time entitlement of any continuing fees.

However, I am thinking way beyond the framework of servicing rights and fees entitlement. If the adviser truly “owns” his clientele, than it is his or her duty to ensure continuation of servicing his clientele on the event if he or she would to pass away. Thus, this is itself some kind of estate planning for the adviser’s advisory business. For example, it will be beneficial for the adviser to have an agreement with his colleague(s) (obviously those whom he trust), that upon his demise, these clients should be serviced by those whom he has chosen prior.  This will also uphold the professionalism of the industry as these clients will feel assured that there is a continuation plan. There are two things guaranteed in life which are death and taxes. It is possible for the practitioner to kick the bucket earlier than his own clients. Therefore, such planning is not optional but part of the normal business planning procedure. If the practitioner always encourages his clients the importance of estate planning, the practitioner should also ensure that estate planning has been done for his business.

In Promiseland, upon death or total and permanent disability of the adviser, the firm would permit 80% of residual commissions and fees to be given to the estate (if he is dead) or to the adviser (if still alive). The remaining 20% is given to the new take over adviser. The new take over adviser is compensated somewhat for servicing these clients while the estate of the out-going adviser benefits from the hardwork build up over the past many years. With such an arrangement, estate planning for the adviser’s own business practice has been made much easier. A case study in point is on the demise of my colleague not too long ago whose estate receives 80% of the continuing renewal fees. See the blog here for more information

 When I told the practice of our firm to this practitioner over the luncheon, she was shocked of this practice and was impressed such terms that the company offers. While vesting rights have become the norm in the industry, she has never heard of “vesting rights” is also applicable for the estate of the adviser.

Financial practitioners are also “consumers” themselves. It is important to look out for good firms with sensible company policies. However, what I mentioned above is probably only relevant for practitioners who see that their practice is a long-term basis and with emphasis placed on long term relationship. Advisers who see their clients as a quick way to get rich will usually skew their recommendations to high upfront commission with little on-going renewals. Thus, the concept of “client ownership” and the duty for business continuing in the context of estate planning is not relevant to them. These short-term advisers wouldn’t have any long-term clients anyway.