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My two-stage plan for advisors who refuse to retire

Tuesday December 16, 2014

I am very discouraged by what I see happening with older financial advisors in Canada who refuse to downsize their business and prepare their clients for life without them. This is sad, because if they pass away suddenly, typically their clients will be in disarray and likely be dispersed among other advisors at the same firm – a “solution” that has not been given much thought or planning. I’d like to propose a two-stage alternative plan that can assist both clients and their advisors who really should retire but refuse to do so.

Why are these advisors not planning to exit the business themselves when they in fact make a living planning retirement for their clients? There are three main reasons:

1. They really like the business. They argue that thinking and working keeps them sharp. That’s fine. But if that’s what they really want, I’d recommend doing it with fewer clients in case something unexpected does happen.

2. They’re greedy. They spent a lot of time building their clients and their book into a lucrative businsess, and they don’t want to let it go. But if older advisors really want to do what is best for their clients, they should start to downsize their book at age 65, even if they feel great and would like to work for another 10 years. Maybe their health will allow this, maybe not. Nobody knows. That’s why we plan or buy insurance.

3. They can’t find anybody “good enough” to take over. This is a rubbish excuse and helps defend the advisors clinging onto these clients until death. Of course every advisor runs his or her business differently, but you can always strive to “partner” with someone who thinks about the business in a similar way.

The odd thing about this attitude is that most of these advisors also offer life and disability insurance and know people get sick and die. It’s human nature, even for advisors, to believe this will happen to other people, not them. It’s great to be a positive person and a positive thinker, but you need a healthy dose of reality too. We all come to a point where we can no longer work, but just because you are self-employed (with no employer to force you out) doesn’t mean you shouldn’t plan for this reality. It’s really unfair to your clients not to plan for this change. Here is one strategy I think makes a lot of sense.

Two-stage retirement plan for advisors

Stage One – When the advisor is 65-70. Financial advisors who turn 60 should start looking for someone about 35-45 years old to eventually take over their book of clients. At close to 65 the advisor should sell about 20% of their client base to this younger advisor. Work with the younger advisor through the transition. A few years later (67-68), sell another 15%-20%, and at about age 70, another 10%-20% depending on your health and attitude toward the business. The result of this planning is that by age 70, over 50% of your clients are in a new client/advisor relationship that could see them getting advice for another 25-30 years. That is planning and caring for your clients.

Stage Two – When the advisor is 70-plus. Many people today lead productive and great lives past 70, but really you should look at this time as a time to further step away from the business and look after just a handful of clients who want to stay with you until the end, say 15-20 client households. Move the remainder to your successor when he can handle them.

Work with the younger advisor so long-term clients will trust him to handle their more complicated situations. You can remain as a consultant in case the clients or new advisor need your advice or if it helps with the comfort level. This is a major and important change for the clients who have dealt with you for 20+ years in many cases. As a consultant in the background, the client relationship would still be in good shape even if something were to happen to you.



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