Boomers: Envision your business transition plan

Ask yourself how you can work less while earning enough, and how prepared younger advisers are to take over

Jan 3, 2018 @ 3:51 pm

By Joni Youngwirth

The Department of Labor rule, fee compression, and the overall migration to advisory business are issues that have been on advisers' minds for some time. But for baby boomers, who are not only the largest segment of advisers but also the ones closest to retirement, a new crop of hot-button issues has emerged. What are they? And how can boomer advisers resolve them?

How can I work less and continue to do well financially?

Boomer advisers have worked hard throughout their careers. Now they want to kick back a little and put in fewer hours, but they don't want to give up the revenue stream they've become accustomed to receiving. Founding advisers have adapted their roles to be not only financial advisers, but also COOs, CFOs, and CEOs. They have worked on their businesses as well as in their businesses. Many boomer advisers are ready to let some responsibility go — but they're not ready to let go of control. One responsibility many advisers want to relinquish is daily operational oversight.

How can I prepare my young adviser to buy my business when the time comes?

Instead of selling externally, many advisers choose to develop an internal adviser to purchase their business in the future. Hiring a 25-year old to evolve as a successor is one example. But there are a myriad of assumptions associated with this scenario. Will the younger adviser:

Develop passion for the business? Pass the CFP exam? Be able to close business with existing clients? Be able to bring in new business? Develop the skills needed to manage and lead the firm?

Most advisers agree that it has taken them decades to become the leaders they are today. Yet they expect their successors to develop the same maturity in half the time.

(More: 2018 and beyond: Business planning, and questioning)

How will the business continue to grow if I'm no longer bringing in new clients?

Working less and still maintaining the same revenue stream is an attractive idea to many advisers. But if you work fewer hours and contribute less to growth, will the firm still thrive and be able to accommodate an ongoing revenue steam? Are other advisers in the firm as good at rainmaking as you are? And just because you founded the firm, does that entitle you to a permanent ROI on growth? While this may be a negotiating point, many assumptions go into this scenario. Timing is key. For example:

How long will this bull market last? When you actually do sell the firm, will the firm's growth be sufficient for successors to pay you for the business, pay the expenses of the firm, and still be profitable? Is your objective to get the highest price for the firm, or do you want to ensure its legacy?


The above concerns are not separate and distinct issues; they are tightly integrated. One approach to process all of these factors simultaneously is to draw them on a couple of graphs. Both graphs show time on the longitudinal axis. For those just beginning to think about their transitions, this may be decades.

Time and Responsibility Graph: This graph plots the time the founder and successor put into the firm. The founder may see weekly hours drop from 60 to 30, while a successor may see the opposite. The graph can show key milestones such as the transition of COO, CFO, and CEO roles respectively.

Time and Production Graph: This graph plots a best- and worst-case scenario for year-over-year revenue growth. It depicts the revenue stream that would go to the founding adviser, firm overhead, and the successor for both scenarios. It shows how much revenue remains for the successor to use to purchase the practice.

Lining up the two graphs vertically makes it abundantly clear what financial realities and timing need to occur for the long-term plan to work. It confronts any assumptions about growth and the transition of roles. Seeing the plan graphically helps both the founder and the successor realistically arrive at a mutually agreeable scenario for future implementation.

Joni Youngwirth is managing principal of practice management at Commonwealth Financial Network.


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