Oh, how systematic we are in planning our clients'
retirements. We figure out how much money they must save, into which
asset allocation buckets their savings should go and, ultimately, a
safe rate at which they can withdraw their savings to recreate their
former paychecks without running out of money.
But unless our clients are small business owners, we may find the planning process is very different for ourselves. Why? Because most advisory firm owners, as you'll see below, don't want to retire. The question is, does their reluctance to sever their business interests give them an excuse to avoid the same precise planning they most certainly apply to their clients?
Let's find out.
Norman Boone, 60, Mosaic Financial Partners Inc.,
Retirement is the last thing on Norm Boone's mind right now as he recently wed Linda Lubitz, owner of Lubitz Financial Group in Miami. "Linda and I really like to travel a lot and might want to live overseas for a few months a year," he says. But Boone isn't talking about retirement; he's talking about what many advisors see themselves doing in their late fifties and their sixties. Why? Because they can. "We think about spending one-third of our time working, one-third traveling and one-third doing community service, or writing or something else," says Boone.
Many advisors' "retirements" will differ from their clients' retirements, even clients with small businesses. Though clients may come through the door with bank accounts fat from selling businesses that were for so long their livelihoods, Boone has no plans to sell his firm. His idea of retirement is choosing how he will continue to do his work, rather than stopping completely. "Linda and I love what we do-sitting in front of clients, catching up on their lives, helping them maintain perspective on what's important and rethinking strategies. I'm not sure it makes any sense to give that up."
And he doesn't have to, because like so many other advisors watching the market for practice sales subside, Boone questions the wisdom of selling his firm for two or three times gross revenues when he can work part time and be paid a salary as long as he desires. "If I sold out now, I might get a few million that would be fully taxed and wouldn't generate the same cash flow," he adds.
And now he can rely on the cash flow from not one but two firms as his new company, IPS AdvisorPro (www.ipsadvisorpro.com), takes off based on a single product that does one thing very well: It creates investment policy statements for clients.
What Boone doesn't mention until asked is that pension plans don't figure heavily in his retirement. "I set up a 401(k) plan for employees and I contribute to it too, but in order for me to live the lifestyle I've wanted, the firm had to be a certain size. So most of Mosaic's profits for the last ten years have gone into building the business." Yet Boone didn't start his firm ten years ago, but in 1987. "Funding my own pension plan was the ideal, but I was living on borrowed money for the first three or four years. After that, our cash flow turned positive, but then I went fee-only, which took some of the profits."
Who will run Mosaic and pay salary and dividends to Boone as he slows down? "Right now, we have one employee who owns 5% of the firm, and I've talked to another employee about buying into the firm." Boone anticipates that in ten years, five or more employees who've paid their dues and added value to Mosaic will own shares in the company. "I suppose you could say it's my succession plan," says Boone. "At some point, I won't be physically able to participate, but as long as I'm still a significant shareholder in my firm, I can control where the cash flow goes."
Robert Binn, 64, Private Portfolios Inc.,
San Mateo, Calif.
"Usually, the shoemaker's son has no shoes, but I've tried to always practice the same advice I give my clients," says Bob Binn, who encourages all of his small business clients to have a succession plan. "I've set myself up so, if I do retire, I'll have five sources of income: my buy-sell, the rental of our office building, my profit-sharing plan, my personal investment portfolio and Social Security, if it's still there." Binn invests his personal assets in the same managed accounts he recommends to clients and to which his employees contribute.
The buy-sell he refers to is with his son, soon to be 33, who built a foundation in the business working in the investment division of a major bank in Beverly Hills before joining his father's firm in 2000. "The buy-sell we have protects my wife in the event of my death," says Binn, who likes to credit his broker-dealer, Securities America, with keeping a fire under him. "They're very proactive with reps when it comes to succession planning, and even have an entire program called Continuity of Practice Program."
Like Boone, though, Binn doesn't plan to completely retire anytime soon. "I'm cutting back now. I take off about three months a year-two weeks here, three weeks there, and one big trip a year when I'm gone for a month. After being off that long, I'm ready to come back." Although he started in the business in 1966 right out of college, Binn says he still loves what he does, particularly when it involves sophisticated estate or charitable giving planning.
Buying the building in which his firm resides was part of his retirement plan, too. "Not only was it a good investment," he says, "but it sends the message to clients that we'll be around a long time. Part of a succession plan is letting clients know there's continuity. Some of my clients have said to me how lucky I am to have a son to take over my practice. My son's been in the business 11 years now, so he's very capable of taking over if I check out." That is probably the only way Binn's going to give up the reins: "You end up knowing more about a client than they know about themselves, so I'd almost feel I was letting them down if I wasn't there for them."
Binn compares his situation to that of a client he had who was a psychiatrist. "It took him five years to retire because he had to slowly wean his patients from their dependency on him. I'm not saying an advisory relationship entails the same level of dependency, but clients want to be thoughtfully transitioned to another advisor over time, not just handed off to someone."
Which is one reason Binn wants his son ultimately to own the firm. "I would consider an internal transition to someone else, if necessary, but I know the way to maximize my firm's value is to avoid having to sell it-or having my widow sell it."
Don Patrick, 56, Integrated Financial Group, Atlanta
Don Patrick-with two office staff members, $70 million in assets under management and 70 retirees and preretirees for clients-says he's close to being able to retire but that it's not his goal. "I will probably cut back eventually, but right now a lot [of my time] goes into running the consortium."
What Patrick is referring to is the Atlanta-based Integrated Financial Group, of which he is the managing director. Forty-one other advisors participate in the consortium, the majority of them in the Atlanta office. Although the group serves many purposes, Patrick frequently mentions the brain trust it represents and the opportunity members have to join in the educational events it sponsors. Of course, it also provides economies of scale in the form of shared resources, like office management and tech support. Patrick has set up a sister firm, Integrated Support Services, to handle its human resources.
But the consortium fills a more retirement-oriented purpose, too. "We allow for the buying and selling of practices and/or client relationships," says Patrick, who also has a Plan B in the form of a business partner with whom he has executed a buy-sell agreement.
Nevertheless, Patrick says he has a boomer-like response to retirement: "I view it as financial independence rather than the classic 'sit in a rocking chair on the front porch' kind of retirement." In other words, here's yet another advisor who really doesn't want to retire-who loves what he's doing. But could he afford to if he wanted? "From a financial point of view, I'm doing all the normal things we tell clients to do, such as contributing to a solo 401(k) plan, purchasing a commercial building for business and investing the same way I tell my clients to invest."
Patrick says Donald Rumsfeld is kind of a hero for him. "He's 75 years old and hard charging, but not doing it for the money," he says. "That's what I want when I'm his age." And that's about as far ahead as Patrick is willing to think for now.
Carl von dem Bussche, 54, Financial Guidance Group Inc., Palm Harbor, Fla.
Carl von dem Bussche and Robert Binn have something in common: sons working in the business. The difference is that von dem Bussche's son, Christoph, is only 25 years old, making his succession plan a bit more tentative. So, for the time being, von dem Bussche retains ownership of all his S corporation's stock while mentoring and training his youngest son until he can confidently begin moving stock over to him.
Fortunately or unfortunately-depending on how you feel about the school of hard knocks-von dem Bussche's son won't come up in the industry as his father did. For 30 years now, the elder von dem Bussche has traveled a circuitous route taking him first through Smith Barney's three-month broker training program ("I didn't know the difference between a stock and a bond"), on to selling tax shelters to clients of CPAs on behalf of another planner ("That planner later served jail time for his deceptive and borderline-illegal marketing tactics") and, finally, to the formation of a one-man broker-dealer.
Then the Tax Reform Act of 1986 took its toll. "I had to start all over again," he says. "I liquidated all my assets, including our home equity and my wife's grand piano, to cover taxes on the phantom income from my own limited partnerships. I was able to sell my broker-dealer to a local life and health insurance company. My wife and I were back to being renters instead of owners for the next five years. We actually had to move six times during that period before we were home owners again."
He began the long climb back by starting a fee-and-commission RIA with one of his large clients in 1987. "I ran the employee benefits and self-insured health plan for his various companies. It was a salaried position that put groceries on the table during those lean years after the tax shelter meltdown."
In 1993, von dem Bussche was finally on his own, operating a fee-based RIA from his home. "I could see the trend of the industry heading to the fee method of compensation, and I was starting to experience internal conflicts with investment recommendations that would pay me more, but may not have been the most cost-effective for my clients. Selling product every month to pay the bills wasn't the way I wanted to live." He knew the only path, ultimately, was to become a fiduciary fee-only advisor.
More than ten years later, von dem Bussche is a NAPFA member, still operating from his home, and managing about $80 million for 110 clients. "Everyone must answer the age-old question of, 'How much is enough?'" he says. "If my practice were to stop growing or if I never earned another dime, I would have enough today-but retirement is not an option for me. Sure, I will slow down, but I love helping my clients achieve their goals and lifestyle objectives."
John Henry McDonald, 59, Austin Asset Management Co., Austin, Texas
John Henry McDonald got into the business in 1981 and has run his firm since 1986. At 59, with 26 years in the industry, you might think he'd had enough.
But nooooooo. Here's yet another advisor who has no plans to retire. "I've started 'changing up,' meaning I spend my time differently now." McDonald characterizes himself as his firm's "ambassador." "I love connecting with people, developing relationships and inspiring and motivating my team."
McDonald plans to hand Austin's CEO title to Eric Hehman on December 31 of this year, moving his own contribution even further from his firm to his community. "I'm on the board of our local opera company, the Classical Guitar Society and our state's guaranty association. I'm Austin's face in the community."
By plan, McDonald began parting with his equity in Austin several years ago while delegating more and more responsibility to his shareholder employees. At this stage, he mainly wants to attract new business, knowing that his team of financial planners can handle what he brings in. Does it consume all of his time? "My creed is if I'm spending more than 50 hours a week in the office, then my life is out of balance," he says.
That said, he's still the primary contact for about 45 of the firm's best clients. "I'll reduce that number in the future. I only need to serve about half that number in order to keep those clients happy."
Asked what his typical day will look like five years from now, McDonald says, "In 2012, I see myself being in the office maybe five hours a week. I'll wake up at 6:30 a.m., maybe 7 a.m., go to the gym as I do now, do two 'hills' on the stationary bike, some free weights, jump in the pool for a few laps and, later in the day, go to lunch with someone in the community. I love going to the club and having lunch, just as my dad used to do. A good business lunch takes about two hours and often leads to new business. That will be my value to the firm." McDonald says he's presently working on a textbook, volunteering with NAPFA, doing a lot of "video stuff" and working on his TV show, Finance Guy. He also plays a mean blues guitar.
Does he have a concrete plan to generate income, though? "By 2015, I figure my total annual income will be over $800,000," he says. How does he know that? "We're planners, aren't we? I expect my firm's annual revenue by then to be about $8 million, with my income being a combination of dividends, chairman's salary and income from my investments."
McDonald still owns most of his firm's voting shares, along with Hehman, who has a minority interest, and he's also distributing nonvoting shares to Hehman and other employees. "This has been my retirement plan all along. I would never sell down completely. My shares buy me a place to come when I want ... to be around interesting people."
We see both striking similarities and subtle differences among our five advisors. They all say they'll work forever. While most know they'll slow down, no one wants to quit completely or change careers. Their love for this business is admirable, but the small business owner with no intention of retiring poses a challenge: to plan or not to plan.
It seems there's a temptation for some advisors (you may have small-business clients like this) to put off developing a formal financial plan for themselves because they see no cessation to the earned income or dividend stream from their practices. Will that be a problem down the road? Perhaps not, but it would seem to strengthen the argument for advisors having their own advisors.