Deceased practices seen as ‘slim pickings’
If a financial planner dies without a succession plan in place, their spouse is vulnerable to ‘firesale' offers to buy the practice, according to Pavuk Legal executive principal Andrew Pavuk.
Many financial planners fail to think of their practice as a valuable asset that will eventually be realised for their estate, said Pavuk.
If a planner dies, there is usually a clause in their licensee agreement that allows the licensee to bring in whoever they want to take over the practice, he added.
"If the estate doesn't nominate, or the will doesn't put [another planner] forward ... then the licensee will just step in and put in their own person," said Pavuk.
And because the newly appointed authorised representative's primary obligation is to the clients, they will not necessarily act in the best interest of the estate and the long-term value of the practice, he said.
"They could run down the practice and when [the estate] goes to sell it, top dollar won't be found," said Pavuk.
Given the effect that the death of a planner can have on the value of a practice, there are some acquisitive planners that will actively seek out ‘deceased' businesses, he added.
"The surviving spouse not only has to become very business savvy very quickly, but they are also in a grieving process," said Pavuk.
This makes them vulnerable to people offering "firesale" prices because they view deceased practices as "slim pickings", he said.
"Not only are they bringing flowers to the funeral, they're bringing in the chequebook with a low value. I've seen it a number of times — I've acted for a number of deceased estates," Pavuk said.
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