Another firm, Costanzo Financial Group (www.ajcostanzo.com) in Monroeville, Pa., has embarked on a multiyear process to turn control over to a family member. In this case, success is likely, as clients would see a seamless continuity in the services and style of client relationships. The transition has been carefully planned to be phased in gradually, over a period of years.
With a succession plan in place, the senior (or retiring) owner might assume an executive advisory role in the firm. While not actively involved in day-to-day operations, she might choose to remain a part of the firm on some level and receive compensation for that role. This has incredible value when staff members have essentially purchased the firm from her because clients are aware that she is still involved. It legitimizes the transition of ownership.
Shut The Practice Down
On the surface, this might seem to be an extreme choice. However, many firms have chosen this path for a variety of reasons. It might be that it's the easiest path and the most cost-effective. It could be that there are no suitable buyers or succession partners. Smaller practices in particular that are closely tied to the principal of the firm may be exceedingly difficult to transition to a new owner. The purchase price of the firm may be substantially below what the original owner of the firm would expect. And if the owner has had relationships with clients for many years, an interested buyer might rightly assume that a large number of clients would defect after a sale, and that further drives down the value of the firm.
So the firm owner may simply decide to shut it down. She might be content with retirement savings or other investments and income sources and may see little value in trying to sell a practice. Still, most practitioners feel an obligation to help clients transition to another firm. In the process of a shutdown, an attempt should be made to give referrals for existing clients.
Work Forever
As unrealistic as it sounds, there are financial advisors who firmly believe that this is their only choice. It may be that they assume no buyers will emerge, since other advisors are also aging. It may be something like a legal limitation with a firm's broker/dealer making it difficult to sell. Or the advisor may believe that financial limitations make it impossible to sell. In most cases, these are fallacious assumptions. With proper planning and advice from industry experts, most practices can be transitioned in one form or another.
Imagine you have a client who thinks he cannot retire because he will lack savings or income sources. You usually don't tell him he'll have to work forever. Instead, you work with his variables: his investments, his risk tolerance, his savings capabilities and the amount of time until he retires. Then you build a set of what-if scenarios to find a comfortable solution.
If you are incapable of applying similar techniques to your own retirement situation, it may be for the same reason that a dentist would not pull his own teeth. You simply lack perspective. That means perhaps you should seek out the same sort of independent advice you often give to clients.
David L. Lawrence, RFC, ChFE, AIF, is a practice efficiency consultant and is president of EfficientPractice.com, a practice consulting firm based in San Diego, Calif. (www.efficientpractice.com). The Efficient Practice offers an advisor network and a monthly newsletter.