At 50 years old, Larry Mathis would like to start the process of transferring his financial advisory business so that he can eventually retire, but finding a younger, suitable successor has been a challenge.
"My strategy was to bring in a 30-something-year-old and start him or her off administratively in order to learn the business from the ground up, but it hasn't worked out," says Mathis, who manages $50 million in Phoenix, Arizona. "It's human nature to want everything now, but their expectations are too high, which has disappointed me."
Mathis envisioned initially turning over accounts valued at $250,000 or less to a junior advisor. "They expect to be managing accounts valued at $3 [million] to $4 million right off the bat," said Mathis.
The father of three is now considering bringing on a 40-something-year old financial advisor instead who would have more seasoned expectations or as a last resort grooming one of his children.
"I have a 20-year-old, a 17-year-old and 14-year-old. It would be a tremendous advantage to bring one of them into the business if they chose it," said Mathis.
Prudential is one firm trying to make succession planning easier for advisors. The company started its practice transfer program in 2002 and has successfully completed 100 transfers since inception. Advisors who are eligible for the program receive a kit, which includes an agreement that both buyer and seller sign.
"It was launched to create consistency in service for the clients of our financial professionals who are retiring and looking to pass on their book of business," said Caroline Feeney, president of agency distribution with Prudential. "We see this program as one we can expand further on because financial professionals have seen success with existing practice transfer arrangements locally."
Bradley DeHaven isn't waiting until he's ready to retire to transition his financial advisor book of business. At 53, the Sacramento, Calif.-based advisor developed a partnership with a financial advisor ten years younger. "We combined our offices so that clients can get used to seeing both of us and being greeted by both of us," said Haven, whose passion is helping parents cope with drug-addicted children.
When DeHaven retires or if either advisor unexpectedly departs the practice, the buying partner would pay to the heirs of the selling advisor the equivalent of 50 percent of trailing commissions in each of the next two years.
"Plan B is my 25-year-old son. He works for the practice answering the phone, and he's studying for his Series 7 license. Clients are meeting him more and he's processing paperwork," said Haven who manages $40 million in assets.
About 10 percent of Prudential's financial professionals who have used the firm's transfer practice program have turned over their business to a family member.
"For the seller, it brings peace of mind of knowing they can select the financial professional who will work with their clients going forward. For the buyer, it offers an opportunity to purchase an established practice that they can continue to grow," said Feeney.
In Blackfoot, Idaho, Carol Holm's plan to transfer her book of business to daughter Cami Holm is well under way even though the 69-year-old mother has no intention of retiring.
"Our clients love knowing that there are two of us and that they will be taken care of if anything happens to me or my daughter. They appreciate that we both know their respective financial plans," said mother Holm who's been in business since 1977.
Cami Holm, who is 44, is poised to take over the firm's $50 million in assets under management. "I wasn't planning to go into the financial advisory business. I was filling in for my mom's secretary in 1991 and we worked well together so I stayed," says Cami. "It ended up being a long-term situation that was initially not meant to be."