It’s 5 a.m. and Roberto is pushing through the rolling 3 ft. waves off the coast of Miami to do some big-game fishing. As the captain of his 42 ft. Custom Carolina, he is excited to bring back a big bounty of Tuna and Mahi-Mahi. This is Roberto’s 28th trip offshore this year, and he hopes his 3 clients aboard will have a great day of fishing.
Roberto is a 69-year-old Independent Financial Advisor who spends about 10 hours a week working in the office, 10 hours working outside the office and the rest with his family. He conducts much of his business via smartphone, with the assistance of his junior partner and assistant.
Roberto is a perfect example of a Financial Advisor who understands the gift he has earned. He spent 30 years of his life building the perfect book: 151 million in assets, 53 clients and 1.4 million in fee-based revenue. He has a small, quaint, but beautiful office in the suburbs of Miami. The office is big enough for him, his junior partner and a part-time sales assistant.
Roberto has a 70/30 split with Jack, his 35 year old junior advisor, who is a CFP and has been with him for 15 years. Roberto keeps his expenses low, and splits a 73% profit margin with his partner. This means Roberto has $715,400 in income, and Jack keeps $306,600—not bad for a junior partner who didn’t have to build a book.
It was 15 years ago that Roberto decided to stop working 50 hours per week and start enjoying a work/life balance. The word retirement has never been in his vocabulary. He plans on reducing his participation in the business over the rest of his life, while increasing his partner’s share.
Roberto watched his dad work 40 hours per week for 40 years. His dad spoke often about the great retirement he would one day have. Finally, at the age of 62, he retired and was determined to finally start enjoying life on his small pension and retirement savings. Unfortunately, his life was cut short, and he died 2 years after retirement.
Roberto's dad spent most of his life working in a job he disliked, hoping to one day retire and enjoy life, but in some ways, he was not able to enjoy the rewards of a retirement to which he had always looked forward. Fortunately for Roberto, he found a career he loved and vowed to enjoy life while he was still young. Roberto believes in the saying, “If you find something you love, you will never work a day in your life,” and he loves being a Financial Advisor.
Not all advisors truly understand the gifts they have. Very few careers allow you to earn a high income while you gradually reduce your hours. As a Financial Advisor, you have the choice of business mix (i.e. Fee based vs. Transactional) as well as the firm you work for—or your own firm. Some firms have no business succession plan in place, and others make a small attempt.
If a Financial Advisor does a good job building relationships, her clients will follow her anywhere—even coming from a bank. This also makes the Wealth Management industry unique. Where else can one become disgruntled, leave her company, and take her revenue with her?
Most Financial Advisors enjoy their profession, and if they plan well, they may never have to officially retire. This is because all of them have a choice to one day start their own firm and structure it how they feel serves them. Some advisors get the uniqueness of the career and capitalize on it, and others never do.
If 90 percent of an advisor’s success lies in his ability to build a book, and if the firms don’t hand out books, then why are the firms taking the lion's share? Let’s break the industry up into three basic groups. Traditional W2 Firms, Banks and Independent firms. Some traditional firms have a basic sunset plan in place for retiring advisors.
This plan usually consists of the retiring advisor slowly transferring his book to another advisor at the firm, while still participating in a declining percentage of the revenue. These plans usually have a 4 to 7-year lifespan, and the advisor can stop working sometime after introducing the new advisor to his clients. This is a great deal for the advisor inheriting the book, and of course the firm. To the advisor giving away his hard-earned book, this is a token gesture by the firm. The only thing it really does is allow the retiring advisor to get some income for a few years without having to work.
Most banks are even worse than the Traditional Firms when it comes to an advisor's retirement. A bank might throw you a party, give you a watch (no diamonds) and off you go to your shuffleboard existence. The banks feel that the clients are 100 percent theirs, and you don’t deserve anything upon retirement. They feel they gave you revenue off their clients during your employment, and that’s enough. Even with a non-solicit, our average retiring bank-based advisor client takes 30 to 50 percent of her book when she goes independent. For the bank-based advisors, the options are simple: take the watch or take your clients.
With any type of firm, if you have clients that trust, like and respect you, they will follow you anywhere. If this is the case, you are in control of your destiny. Most Financial Advisors entered the business because they enjoy a high income and love the flexibility the career allows. Most of them are also “Type A” driven individuals who enjoy a challenge and don’t really want to retire fully. However, most of them are not really aware of all the options available. At The Rummage Group we consult countless advisors who are aware of a few options, but not many. They also don’t have the time to research the hundreds of unique options available.
It’s important for financial advisors to know, if they want to one day sell their practice for up to 3 times revenue and just walk away, many options and buyers are available. We get calls every week from big teams looking to buy a practice or book. The challenge is finding and informing retiring advisors that many buyers are available. On the other hand, if you wish to keep working, but slowly reduce your hours, that option is available as well. For retiring advisors, it’s impossible to select an option they’re unaware of—so the trick is education.
Retiring advisors have countless opportunities, they just need to know where to look or whom to consult. This is one of the best careers in the world because of the ability to have loyal clients and annuitized revenue. In most careers, you only have one option, work until you can afford to retire, and it’s all or nothing. There is no option to monetize and sell what you’ve built, or to maintain your income while working less as you age.
For advisors in a bank model, the most important thing to remember is that it’s all about the relationship. If you plan to one day retire as an independent advisor, instead of accepting a watch, you need to have clients who will follow. If your clients have not spoken with you in years, I doubt they will even remember you, let alone follow you to your own firm. Bank advisors on average speak to their clients less frequently than their counterparts in other models. All advisors should speak with clients via phone at least once every four months, and have at least one annual face-to-face portfolio/plan review. It is also very important to be highly accessible to clients and to provide them with your cellphone number.
When it comes to the second half of an advisor's career, most don’t take advantage of many unique options available. Advisors should not sell themselves short by accepting the retirement gold watch or giving away their hard earned book for pennies. My advice to retiring advisors is, “don’t just give away the bag of gold you worked so hard to obtain, rather discover your options and monetize it”. Happy Hunting!