When Greg launched his wealth management firm in Louisiana, he built it with a solid team of financial advisors who specialized in high-net-worth clients. One of his top advisors, Michael, had been with him for over a decade and handled some of the firm's largest accounts.
Then, without warning, Michael announced he was leaving to start his own practice. Clients followed, revenue dropped, and the firm scrambled to fill the gap. Greg had never thought about how a single departure could impact the firm's financial health—until it was too late.
This is where key person insurance could have made a difference.
Key person insurance is a life and disability insurance policy that a company takes out on an essential employee—typically an executive, lead advisor, or rainmaker—who is critical to the firm’s financial success. If that person unexpectedly leaves due to death, disability, or another unforeseen event, the firm receives a payout to help manage the financial disruption.
A financial advisory firm relies on its top talent to build client relationships, manage portfolios, and drive revenue. Losing a key advisor can create instability, disrupt operations, and even lead to client attrition. Key person insurance helps firms navigate this risk by providing a financial safety net.
Losing a top advisor doesn’t just mean replacing an employee—it can trigger a cascade of financial and operational challenges.
A lead advisor often brings in a significant portion of a firm's revenue. Their sudden absence can lead to lost clients, reduced fees, and overall revenue decline.
Clients develop strong relationships with their advisors. If a key person leaves, clients may feel uncertain and follow them elsewhere, weakening the firm’s stability.
Finding a suitable replacement for a high-performing financial advisor takes time and money. Training a new hire to match the previous advisor’s skill level and client rapport is an additional challenge.
A sudden departure can leave gaps in client service, compliance processes, and firm leadership. Key person insurance helps ensure that the firm has the financial resources to stay afloat during the transition.
A financial advisory firm purchases a life and disability insurance policy on a key employee. If that person passes away or becomes disabled, the firm receives a payout. This payout can be used for:
The policy amount depends on factors like the key employee’s contribution to the firm’s revenue, their role in business development, and their client relationships.
Not every employee requires key person coverage. Firms should evaluate who drives revenue and operational stability.
Top-producing advisors managing high-value clients are crucial to the firm's financial health.
The leaders of the firm shape its strategy, attract clients, and maintain regulatory compliance. Their sudden absence can be a major setback.
Some firms have dedicated professionals who bring in new clients and partnerships. Losing them could slow growth significantly.
Selecting the right policy involves evaluating the firm’s structure, revenue sources, and financial risks.
Determine how much revenue the key person generates and estimate the financial impact of their absence.
Not all key person insurance policies are the same. A provider experienced in the financial industry can tailor coverage to match the firm's needs.
While key person insurance is a crucial safeguard, financial advisory firms should also consider other protective measures.
A buy-sell agreement determines how ownership shares will be transferred if a key person leaves, ensuring business continuity.
Having a clear succession plan in place helps firms transition smoothly when a key employee departs.
Maintaining strong relationships across the firm, rather than tying clients to a single advisor, can help prevent client loss when an employee leaves.
Many financial firms overlook key person insurance until it’s too late. If a lead advisor, managing partner, or business development expert were to leave unexpectedly, would your firm have the financial stability to recover?
Key person insurance is an investment in business continuity, protecting firms from the financial uncertainty that comes with losing a top performer. By planning ahead, financial firms in Louisiana can ensure they have the resources needed to sustain their operations, maintain client trust, and keep their business growing—even in the face of unexpected changes.
Founded in 2017, Kastner Insurance Group is a full-service, independent insurance broker based in Lafayette, LA. Our insurance agents specialize in offering a variety of insurance products tailored to individual and commercial needs, making sure clients receive personalized and comprehensive coverage options from a variety of insurance companies/insurance carriers.
With over 43 years of combined experience, the team at Kastner Insurance Group is dedicated to providing expert advice and exceptional service. They proudly serve professional offices and businesses across Lafayette city/parish, Youngsville, Broussard, Baton Rouge, New Orleans, Alexandria, Acadiana, and statewide in Louisiana.
Call us today or visit our website for a customized quote.
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