Protecting the future of your practice and your family with a catastrophic plan
Every day in your role as an advisor, you help your clients plan for and safeguard their futures. But when was the last time you applied some of that expert advice to your own?
When it comes to preparing your business and family for the unexpected, having a catastrophic plan in place is crucial.
For your family, your clients and your peace of mind
In the event that you pass away unexpectedly or become permanently incapacitated, a catastrophic plan – also called a commitment agreement – enables you to formally outline your wishes for your book of business, ensuring it’s transferred to the person of your choosing and that your loved ones receive fair compensation.
BENEFITS OF A CATASTROPHIC PLAN
For you:
- Protects you and your beneficiaries in the case of death or disability
- Helps build long-term business value that can be more readily realized and distributed to your beneficiaries and successor in the case of a catastrophic event
- Allows you to plan ahead and help ensure your wishes for your practice and your beneficiaries are carried out
- Informs your firm of your chosen successor if you’ve identified a good fit
For your clients:
- Offers them the security of knowing they’ll be taken care of in the future by professionals they already know and trust
- Gives them the confidence that they can continue to rely on your practice for their long-term financial and investment plans
While some plans can become complex and require more consultation with legal counsel, most are very straightforward:
- Name a successor, beneficiaries and your payment preferences in a formal document
- Sign it along with a witness
- File it with your firm
Plans are usually structured to provide immediate income to the named beneficiaries. And payments are paid as a percentage of production on the book for up to five years (the maximum time allowed by FINRA).
Despite that relative ease, many advisors leave the planning until it’s too late.
As of May 2024, roughly 70% of Raymond James advisors have a catastrophic plan in place.
FINRA Rule 2040
The consequences of not having a catastrophic plan in place are most notable in terms of FINRA Rule 2040, which bars non-registered persons from receiving any payment relating to your brokerage business. This means that your loved ones are not guaranteed any benefit from your book of business’s value, and you will have no say in who will step in to take over your clients’ accounts. Without a specific plan in place through your broker/dealer, the future of your book is out of your hands and your beneficiaries could receive a heavily discounted lump sum paid not to them directly, but to your estate.
Better safe than sorry
A catastrophic plan is one of the simplest, yet most important safeguards you can have to protect your loved ones and your clients from the unexpected. It takes only a few minutes to complete and can be updated throughout your career to reflect the changes and events in your life.
Easier than you think
Getting started on your catastrophic plan can be as simple as answering three questions:
- 1. Who is your successor?
- 2. Who are your beneficiaries?
- 3. How do you want them to be paid?