(From the October 2021 Edition of eFORUM)
By Christine Timms
The ideal retirement age is not the same for everyone. Each advisor and their circumstances is unique, but vulnerabilities can grow with the age of the advisor, especially for those beyond traditional retirement age.
Many of the issues creep up so slowly that they often go unnoticed until something big happens to draw attention to the problem. The lack of awareness or acknowledgment of these vulnerabilities can hurt the advisor’s practice and the people they care about in many ways. The risks will vary with each individual advisor and their practice. I urge every advisor to think about how these risks could impact their clients, team members, personal situation, and family.
The older the advisor:
Team members’ current and future career plans are dependent on the advisor’s exit plans. They need to know if they will be taking over some or all of the practice. Alternatively, team members will need to know how they will fit into the team of the successor advisor.
The older an advisor is:
Many of the advisor’s personal risks could result in reduced effectiveness at work. If your skills, attitude, or level of dedication deteriorate significantly, sooner or later you will be doing a disservice to your clients, your team, and your firm.
Besides personal risks, there may be ongoing risks to the practice itself. Let’s examine these risks.
An advisor’s reduced capabilities could lead to errors and increased liability for the advisor and their firm. How awful would it be to end your career in the crosshairs of regulators or being sued by a client?
As people age, it often becomes more difficult for them to keep up with technological advances. The pandemic forced many advisors to work from home with initial limited access to their assistants whom they may have been relying on for technology assistance. While many advisors may be comfortable with technology and virtual meetings, others may continue to be overwhelmed and unwilling to embrace the changes. The services these advisors offer to their clients might fall behind those of their competition.
Clients often start looking for their next advisor when they realize their advisor is nearing traditional retirement age. The clients and their families are aware of the client vulnerabilities listed above even if the advisor refuses to acknowledge those dangers. If no successor has been identified, aging clients may feel the need to take action themselves before they become less capable of choosing a good advisor. Also, an older advisor’s clients become more vulnerable to suggestions from the next generation to move to a younger advisor.
A good transition plan with an identified successor will mitigate the above risk. But waiting too long to establish a plan might cause doubts in all those involved (successor, team members, and clients).
The longer an advisor waits to retire, the harder it is for team members to stay interested and loyal to the advisor — especially if the advisor has toyed with their future by changing or never really setting a retirement date.
Also, the longer advisors wait to retire, the less access they and their successor will have to the clients’ next generation as they acquire their own advisors (unless they are already clients).
All of these ongoing risks can reduce a practice’s revenues and assets under management, thereby reducing the price potential successors are willing to pay. That’s because aging clients become less valuable to a successor (practice referral values are usually based on expected future revenue from each client).
Personal issues can lead to shortening the transition overlap period. Successors will not pay as much for a practice when the exiting advisor is unable or unwilling to participate in a significant overlapping service and introductory period.
I urge every advisor, especially those at or beyond traditional retirement age, to think about how these risks could impact their clients, team members, personal situation, and family. The best protection against all these risks and vulnerabilities is a well thought out and written succession plan, as well as a realistic departure date.
Christine Timms is the author of three handbooks for the financial advisors, including, Transitioning Clients and the Retirement Exit Decision. Visit www.christinetimms.com for more details. Christine Timms can be reached on LinkedIn.