'Retire in place' doesn't cut it as a succession plan

If advisers spend less and less time on their practice, how competent will they remain as a financial adviser?

Apr 16, 2019 @ 11:16 am

By Scott Hanson

It has become apparent to me that the succession plan of many older advisers is simply to retire in place.

To achieve this, advisers basically stop working full-time, place all (or most) client assets in fee-based accounts, strip out as many expenses as possible, come into the office less and less, and communicate with clients only when the client reaches out.

Otherwise? Sit back, collect "dividends," and let it ride.

Yep, model this out on a spreadsheet and it can look enticing.

But while this "retire-in-place" strategy could work well financially for many advisers, I would argue that, among other things, it may be a breach of one's fiduciary duty.

The financial advice industry is becoming increasingly complex, with new products and technologies emerging on a regular basis. Add to that ever-evolving tax and compliance laws, and it takes a lot of time and energy to stay current.

If an adviser no longer takes his or her profession seriously, how competent will they remain as a financial adviser? Will they really be in position to counsel their clients if they themselves are not fully devoted to their craft? To think of it another way, would one fully trust a pilot or surgeon who only worked a couple days each month?

(More: RIA succession plan takes the long view)

I implore any adviser reading this to take a hard look at what is in their clients' best interests, rather than their own. Any succession option an adviser considers should first focus on how best to serve the people who've entrusted you with their life savings.

One way I like to determine what's in my clients' best interests is to look at it through the lens of my mother. Would I recommend this product, service or course of action to my mother? Would I trust this adviser to handle her affairs?

And, when an adviser wants to slow down or cash out? There are other avenues they can take that can provide a fair value for his or her practice and enable the adviser to remain engaged in some fashion, and still serve clients in the best manner possible.

(More: RIA firm sales could hinge on succession planning, study finds)

One option is to partner with a younger adviser. For this to work long term, that younger adviser would obviously need to be well-skilled in the trade and also should have some "skin in the game" to ensure that he or she stays around for a long time.

Another great option is to sell the practice to a larger, growing firm. If the firm is truly client-centric, it's likely the clients will get better service, as well as access to a greater array of services. There is no shortage of firms involved in acquisitions. Some offer flexible partnership terms that allow for a variety of different levels of involvement and outcomes.

In the end, simply doing nothing while showing up to the office less and less may be good for the adviser, but it's clearly not what's good for the client, or for the fragile reputation of our profession.

(More: To thrive, do what you love)

Scott Hanson is the co-founder and a senior partner at Hanson McClain Advisors.


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