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Selling the least profitable part of your wealth management business

Feb 27, 2014 @ 10:36 am

By Liz Skinner

Practice management, succession planning
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Some financial advisers have found a way to work less, keep their best clients and even pocket a little change.

These advisers, many close to retirement, are selling their smaller client relationships to another adviser or firm. Though it can be an emotionally difficult process, some think it's a great solution to help aging advisers, struggling junior advisers and even investors with lower account sizes.

“We see partial-book sales coming up more and more from advisers who are 50 to 60 and want to keep just their best clients,” said Jeremy Holly, LPL Financial's senior vice president for independent adviser services. “They're maintaining the relationships they want and working less.”

The partial-book sale allows them to derive value from their business before they're willing to walk away completely from the industry, Mr. Holly said. It's also better for less affluent clients, who are likely to end up with advisers who have more time to devote to smaller accounts, he said.

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It's not just the soon-to-retire adviser who is finding this strategy beneficial.

Giles Almond, co-founder of Matrix Wealth Advisors, sold a portion of his client base to another local firm in 2012. About 18 relationships moved over to the other firm, and today Matrix manages about $239 million for 146 clients, Mr. Almond said.

“It was not an easy decision, as a number of these clients had been with us for many years, and some I had known since childhood,” he said.

Matrix found a local, fee-only firm with a similar investment philosophy willing to buy the relationships.

“We found them a better home,” Mr. Almond said of these smaller accounts.

Client reactions ranged from some saying they had expected such a move for a long time, to others who shed tears — and still others who were angry, he said.

The partial book sale has cut down on Mr. Almond's workload, because there are 10% fewer relationships to manage. Better still, the change hasn't reduced the 24-year-old firm's income, he said.

Mr. Almond, 57, said he expects to have a full succession plan in place within the next five years.

Most advisers say they don't plan to retire all at once. About 52% plan to reduce their practice activities before they retire, according to a survey of about 500 advisers conducted last year by Mathew Greenwald & Associates for Signator Investors Inc.

Additionally, about 42% of advisers said they have a plan in place to continue working with key clients as the adviser moves into retirement, and another 45% intend to create such a plan.

Nick Georgis, vice president of Schwab Advisor Services, has seen some advisers selling portions of their business in order to prepare for their own retirement. But not frequently, he said.

He has seen more partial-book sales work as a way for advisers to segment their business and find another colleague for their smaller clients who they can no longer serve profitably. Increasingly, though, Mr. Georgis expects to see advisers serving smaller clients in an altogether different way.

“I think the trend for advisers will be to look for more and more ways to serve the smaller client in an online fashion,” he said.

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