In recent years, the four wirehouses (and many regional and boutique firms) have rolled out enhanced “retire-in-place” or “sunset” programs for their advisors, such as Merrill Lynch’s CTP, UBS’s ALFA, and Morgan Stanley’s FAP. The details vary, but the concept is simple: Advisors can monetize their life’s work without transitioning their book, and the firm gets to retain assets it might have otherwise lost to attrition. And for some advisors, these programs have been a tremendous gift, but many remain highly skeptical.
Why would a (presumably) financially savvy and sophisticated advisor walk away from “free money” for alternate means of sunsetting/monetizing? Are these advisors imprudent or wise to seek alternatives to monetizing their life’s work?
There are certain realities around retire-in-place programs that advisors need to be aware of; these five are the most prominent:
1. There’s no such thing as a free lunch.
Despite the hype, these deals are not quite the “gift” they are often made out to be. The next gen inheritors of the agreements are effectively buying a business they won’t ever own. For the retiring advisor, while these deals are a great way to monetize their life’s work without having to make a move, they almost always represent a discount to the fair market value of the business. That is, an advisor might well get more for their business elsewhere.
2. The agreements have real teeth to them.
While they vary by firm and situation, typically, wirehouse sunset programs come with onerous post-employment restrictions, which, in effect, make advisors “stuck” at the firm for the life of the agreement. On the surface, that’s completely fine—but only if the inheriting advisor is certain that the firm is the best steward for their business.
3. Advisors are increasingly future-focused.
This long-term view means that an advisor must be absolutely sure that their current firm is the right legacy for them, their team, and their clients. And that can be a tough pill to swallow. As one advisor put it, “How do I know I’ll be able to live with whatever policies they enact in the next five years?”
4. “Long-term-focused” does not necessarily mean a move to independence.
While in many cases, an advisor might choose to forgo a retire-in-place deal for independence, that’s not always the case. For some advisors, regional and boutique firms like Raymond James, RBC, and Rockefeller are “independent enough.” Advisors might even opt for another firm within their same channel (i.e., move from wirehouse to wirehouse), which comes with an added benefit: “double monetization” whereby an advisor can move the business once and monetize twice (once via a recruiting deal and then again via the new firm’s sunset program).
5. Buyer and seller beware
The lukewarm reaction to firm retire-in-place deals is not limited exclusively to the retiring advisor. For inheriting advisors, these programs might seem like even more of a no-brainer: They get to run a meaningful book of business basically for free (since the firm typically finances the purchase). But for all the reasons listed above, next gen advisors are weary of these programs because they have too much to lose and too much runway to be locked into less-than-optimal circumstances for an extended period of time. Inheriting a book is great, but only if you can manage it at a firm that fits your vision and goals.
Historically, when advisors changed firms, there was an expectation of monetizing for big dollars. Independence was an outlier, and if an advisor ever had an opportunity to acquire a book of business it was a foregone conclusion that they would take it and run. Today, the shift in advisor mindset toward a longer-term orientation has advisors making moves that would make the old guard fall off their chairs. That certainly doesn’t mean they’re foolish; it just means priorities have shifted. Simply put, an advisor might opt to forgo a lucrative sunset package because they want more freedom, control, flexibility, autonomy, the potential of better long-term economics for themselves and next gen inheritors, or a host of other “quality of life” factors.
Gone are the days when a check solves all. Advisors are demanding more, and that’s good for clients and the industry at large.
