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Transitioning Out: Succession Planning for the Wirehouse Advisor

Transitioning Out: Succession Planning for the Wirehouse Advisor

There are many aspects of the financial services industry that leave much to be desired in terms of “processes and procedures” impacting the lives of advisors and clients.  Sitting perched at the top of that stack is the inability of an advisor to adequately transition their business and clients to the next generation in an orderly and responsible manner.  

Financial advisors go through years of rejection, uncertainty and perseverance to develop a successful practice with a strong client base. When these advisors look back with pride on those early years, they do so secure in the knowledge that what they have built is a solid and stable business in their own image that has helped secure a wonderful lifestyle for their clients and their loved ones.  Now, if only the transition out of the business could be so rewarding!

Few things are handled more poorly within the four walls of a wirehouse branch office than the distribution of accounts following the retirement of a financial advisor.  As a retiring advisor plans his or her departure, a veritable food fight ensues, with spats over (i) who is most deserving of the “best” or highest grossing accounts, (ii) who ranks “first” in the convoluted and overly-engineered rankings that determine “draft order” as the accounts are to be re-distributed, and (iii) what pre-existing relationships or synergies may be in play that should influence the distribution. This rugby-scrum in the board room is most frequently settled by the age-old methods of “biggest producer is king” (meaning gets his/her choice of top clients by virtue of their position at the top of the production rankings) or “squeaky wheel gets the grease” (meaning the manager is so sick of the belly aching that they acquiesce to the noisiest advisors during the process). Lost in this scuffle are the wishes of the retiring advisor and more importantly, the needs and desires of the clients.

Many of the major firms have produced some form of “client transition program” that allows for a retiring advisor to receive a declining portion of the revenues their business generates over a three- for four-year period, provided they have joined up with a team of other advisors at some time prior to the announcement of their retirement.   On paper this makes sense until one considers that to both the retiring advisor and client, this is much more than just a business transaction.  This is a two-way relationship that has been nurtured over many years that often includes multiple generations of the client’s family and the advisor’s sales assistant as well.  The declining payout formula places control over how the business will be run in the hands of the new advisor, with very little consideration for the model the retiring advisor has adhered to through the years. In this declining payout model, as revenues generated by clients will only partially be received by the junior team, the retiring advisor’s long-time client immediately becomes a second class citizen on the new team, relegating them to B-level service and attention. This transition path also places the burden of keeping and transitioning the clients on the senior advisor since he or she has no control over the junior advisor. This lack of control over the transition process in turn, affects the retiring advisor’s economic benefits.

This loss of control and economic benefit by the advisor and decline in quality of client service underscore the inadequacy of most wirehouse transition models currently in place.  That is why more and more long-tenured wirehouse advisors are resisting the advances of local managers pushing their transition programs and teaming mandates on them. Instead, they are considering the merits of selling their business, as an actual business owner who has grown a clientele and built an inherent equity value through long-standing relationships with their clients over many years would.

The independent financial advisory world presents a more attractive option, both from a client relationship and an economic point of view. The economics are better since when you move to an RIA with your clients, not only are you generally paid more than the wirehouse retirement plans for your client relationships, but the sale is usually taxed at predominantly long-term capital gains. Most importantly, at an RIA, you have greater control over the transition process for your clients – not only can you control which junior advisor to work with, you can also ensure that your clients are not going to suddenly have their service model changed on them.

If you are an advisor nearing retirement at a wirehouse, you need to be asking yourself what is most important to you? If ensuring continuity of high-class service to your clients and securing your own future are the answers to that question, the right solution is pretty apparent.



Chris Dupuy serves as president of Focus Connections. Anita Venkiteswaren serves as vice-president of Focus Successions.

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