This content is from: Practice Management

The Playbook for Keeping Older Rainmakers Working

They have cash. Give them something else.

RIAs must do more to retain talented older advisors. The average advisor is 51 and “nearly one-third of RIAs will retire in the next 10 years, representing 38.4% of assets.” 

Keeping these workers requires being sensitive to their needs while keeping the firm’s best interests in mind. It also entails having a succession plan and replacement strategy.  For advisors looking to leave, innovative solutions can help them stick around. Of course, many want to stay as long as they can, especially given that they often work in comfortable work environments, feel appreciated, and engage with clients who depend on them.

A 2019 study by Boston College’s Center for Retirement Research states that “the age at which you retire is your most important financial decision.” That study also notes that working longer improves physical health, life expectancy, and psychological well-being.  Because of rising life expectancy, most people who retire at 70 can still expect a long retirement. 

Having extensively consulted about succession plans and RIA mergers and acquisitions, Louis Diamond, executive vice president at Diamond Consultants, based in Morristown, N.J. and New York City, recommends three strategies for firms dealing with advisors eyeing an early exit.

First, working together, clarify what are the advisor’s goals, how long they intend on working, and what exactly they want their role to be. The aim of the conversation is to open up communication so everyone agrees on what’s best for both parties.

Next, determine the best approach for handling the advisor’s business and roster of clients. Should the firm groom a younger advisor to manage assets while the retiring advisor sets up client meetings, explains the culture, and describes client preferences? 

Lastly, firms need to cultivate next generation leadership. Promoting an advisor to lead advisor can pay big dividends. If a smaller RIA is sold to a larger firm, the transition will likely be managed and expedited. If the firm is sold to a smaller firm without offices nearby, identifying a local RIA may be necessary to ease the transition.

Diamond emphasizes, “Until the advisor feels their clients are well-taken care of after they leave, that individual can’t retire.”  The firm must ensure that the next-generation advisor shares the same vision and culture.

Innovative approaches can work well, too, asserts Diamond. One option is to offer minority investment or recapitalization. Because many advisors have grown assets beyond the capability of most junior advisors, firms can help older advisors sell a portion of their business at a market-rate price. That still leaves enough equity on the table in the firm to make it worthwhile for the next-generation advisor to take over the business.

RIAs can also use the transition as a business development tool, recruiting advisors, then training and immersing them in the firm’s culture while they learn from the outgoing advisor.

Also, workloads can be eased. “If the firm removes one activity that the advisor doesn’t like and transfers that to someone else, it can help keep them on the job,” Diamond explains.

Lastly, firms can devise attractive titles such as emeritus advisor to keep boomer advisors involved but not in full-time client roles. Some can provide continuity working as relationship managers for a subset of clients.

A major mistake is “keeping the lid on it and not dealing with it,” says Diamond. If ignored, the value of the advisor’s book of business invariably dwindles, resulting in a lower valuation.

The key to making a transition work is to “embrace it,” asserts Diamond. “Instead of seeing it as a doomsday scenario where everyone is about to retire, you see it as an opportunity, and a business development tool, to start the conversion to the next generation.”

Arguably, the trickiest aspect to this is developing a well-tuned succession plan, says Julie Genjac, a registered representative at the Hartford Funds, based in Kirkland, Wash. “Finding a person who has similar philosophy, values, and will truly care for the legacy book of clients is crucial.”

The timeline is important to consider when establishing an exit plan, says Genjac. The retiring advisor must play a vital role in the “transfer of trust” process. Then the advisor can transition into the role of mentor for junior advisors. 

However, early advisor departures sometimes help. The CEO of a large advisory firm, requesting anonymity, told RIA Intel that up to half of his advisors who are 60 and older will likely retire in the next few years. Some firms, he says, consider these advisors a liability as they often don’t stay current with technology and data. “We call them the rich and tired. They’ve made a lot of money and don’t have the energy or desire to keep going,” he says.

Boomers don’t always dominate, however. Ron Carson, founder and CEO of Omaha, Nebraska-based Carson Group, a financial advisory firm with $12 billion in assets under management with 122 partner offices, says the average advisor at his firm is 38, and that boomers on staff are encouraged to draft succession plans.

Carson says boomer advisors can remain as “rainmakers as long as they want to, even after they sell their accounts.” They can stay on a consulting basis, part-time basis, whatever works for them and the firm. The ones who consult “are paid purely on success, at no expense to the company. They can work one hour a week or 100 hours, or from their yacht, or wherever they want.”

But the Carson Group, like many other firms, operates as a team, with a financial advisor, estate planner, tax expert, all focused on a client’s needs. As such, if an advisor leaves, the team can easily absorb the loss. Hence Carson says his firm concentrates on developing younger advisors “who we want to support and take over the business.”

Finally, Diamond implores that the following be kept top of mind during these sensitive conversations: “The business is the advisor’s life work and much of his heart, soul, and identity are intertwined with the business.”

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