Financial advisors spend years developing their business, cultivating relationships, and serving clients. After all this work, the same care needs to go into thoughts about succession planning and retirement. For advisors at big firms, the options are limited, they are what they are if advisors have signed agreements with them. However, there are more ways to negotiate and establish better retirement options than one might think. After all the work put into developing a practice, retirement terms should reflect a successful career without heavy handed limitations imposed by big firms.
The problem.
Covid accelerated the rate of advisor retirement and the trend continues. A recent report issued by Cerulli Associates/Edge found that the industry will lose 106,264 or 36.8% of advisors to retirement and an estimated $11.9 trillion or 38.9% of assets from those leaving the practices of retiring advisors1. The report also found that advisor headcount grew by just 2,579 last year, barely offsetting retirement figures. With an estimated failure rate of 72% for all new advisors in their first 5 years, this is a clear message that senior advisors need to think ahead about succession planning way ahead of time, finding the right retirement package and replacement team. When considering retirement, financial advisors have three primary concerns:
- The well being of their clients.
- Who will be the next generation team to serve their clients?
- What is the financial retirement package?
What happens generally at big wirehouses in retirement presents genuine concerns for advisors and the next generation of clients they serve. For advisors, the book of business is sold to the firm, not to the team, giving the firm ultimate control over the practice. The firm can then do as it pleases by reassigning accounts, and even putting clients with salary plus bonus private banking advisors. No advisor can then be assured the firm is doing the best thing for the client. For the next generation advisor coming in to manage the practice, once again, there is no control as the firm owns the book of business. The firm can change payouts, choose how clients are invested, and even take accounts. Lockups can be as long as 7 years, there can be a 2-year non-solicitation agreement once the book is paid off, and the practice is excluded from protocol. There is little to no security in this.
More options than it seems.
- A retiring advisor can potentially receive an equal or greater retirement package at a competitive firm of 350%+, most after only 5 years LOS, while also receiving 300%+ to transfer the book. A total payout reaching 600%+
- Advisors that opt to go for independence have the flexibility to create their own succession terms and timeline between the advisors (not the bank) and at a market value of 4-6x topline revenues versus 2-3x in the wirehouse world. The benefits for the next generation advisor taking over the book is to set them up for ownership also, and avoid the complicated stipulations of big firms such as non-solicitation, loss of control, and potentially loss of financial payouts.
Forecasting life’s big events can provide the opportunity to do the due diligence and assess the position of your business within the current landscape. Advisors can learn the current valuation of their life’s work and prepare for the longevity of their clients’ best care. There are options, and know that you do have them.
1- fa-mag.com: Financial Industry In Danger Of Facing An Advisor (6/27/2023)
As the Editor of The Gershman Group, a boutique financial services consulting firm, TGG brings expertise in financial analysis, strategic planning, and market research. With a keen eye for detail and a passion for helping businesses navigate complex financial landscapes, TGG delivers insightful, high-quality content to empower informed decisions. Backed by years of industry experience, TGG makes complex topics accessible through clear and compelling communication, shaping the firm’s thought leadership and commitment to excellence in financial services.
