Broker-dealers focus intently on transitions

NEW YORK — Like their clients, advisers and registered representatives are getting older and often worry about their futures.
For investors belonging to the baby boom generation, that means developing a plan to pay for retirement. For reps and financial planners, many of whom also are baby boomers, it means developing a succession plan for their practices.
To assuage advisers’ fears, a number of top-tier broker-dealers are focusing intently on succession planning and transition programs for their affiliated reps. They often are using these recently spiffed-up offerings as part of their recruiting efforts.
Although broker-dealers have creating transition programs for years, their efforts have really picked up over the past six to 12 months, executives and observers said.
And advisers are facing pressure from broker-dealers — and sometimes their clients — to plan for the future, said one industry consultant.
“Broker-dealers want their reps to put a succession plan in place, because it protects their assets,” said David Grau Jr., corporate program director for FP Transitions of Portland, Ore., which handles 750 to 1,250 sales of reps’ and advisers’ practices each year.
Barrage of questions
And another issue that advisers face is affluent clients’ peppering them with questions about the future, added Mr. Grau, who has 22 independent-contractor firms as clients.
Among independent-contractor broker-dealers who are focused on succession planning are Raymond James Financial Services Inc., Commonwealth Financial Network, First Allied Securities Inc. and the broker-dealers in the AIG Advisor Group and National Planning Holdings Inc.
Ameriprise Financial Services Inc. of Minneapolis, which employs franchisees as independent contractors, is also emphasizing succession planning to its reps.
And many advisers are aging baby boomers, just like their clients, therefore making the need for a plan more imperative, observers said.
The median age of a financial adviser is 51, said Philip Palaveev, senior consultant with Moss Adams LLP in Seattle. The overwhelming majority of advisers are loath to sell their practices, he said. Instead, they want to keep going to the office and talking to a stable of clients.
Because of the way that a buyout often is structured, an adviser often can make more money by keeping their practice, Mr. Palaveev said.
“Most advisers enjoy working,” he said. “They don’t know what to do if they’re not working.”
“The news is that [firms] are starting to throw real money at this,” Mr. Palaveev added.
In an environment with many more buyers of practices than sellers, broker-dealers’ efforts vary.
“A lot of people love to discuss [succession planning], but not a lot happens,” said M. Shawn Dreffein, chief executive at National Planning Corp. in Santa Monica, Calif., and president and chief executive of Santa Monica-based National Planning Holdings Inc., which comprises NPC and three other broker-dealers. “The challenge is that there are more acquirers than sellers.”
NPH is in the process of creating a program to address the issue, Ms. Dreffein said. “I don’t think anyone has successfully cracked the code.”
Some might disagree.
Raymond James Financial Services, for example, is on the verge of seeing an increase in the amount of revenue among the practices bought and sold by its affiliated reps, said Matt Matrisian, vice president of practice acquisitions.
In fiscal year 2006, which ended in September, deals accounted for $6.5 million in revenue, a tiny amount when compared with the St. Petersburg, Fla., company’s gross revenue. But over the first four months of fiscal 2007, deals of practices accounted for $5.9 million in revenue, almost matching the total for the previous fiscal year.
Raymond James launched its group last July. “We try to do everything, from soup to nuts,” Mr. Matrisian said. That ranges from benchmarking an adviser’s practice and consulting on its valuation to consulting on any potential mergers-and-acquisitions strategy.
Ameriprise Financial has been beefing up its effort to recruit experienced reps and, on the back of that, has added programs and services for advisers to buy practices, said Brian Heath, president of its U.S. adviser group.
For example, it works with FP Transitions and has created a dedicated website for buyers and sellers. “We’ve already had 200,000 page hits,” Mr. Heath said.
Similar to a will
Some regard a successful succession as the adviser’s version of having a professional will.
AIG Financial Advisors Inc. of Phoenix has set a goal to have succession plans in place at 90% of its 450 branch offices by the end of next year. “It’s a reality. Our advisers are getting older,” said Chris Radford, national sales manager.
There is a tremendous need for such plans, he said. “We did have some situations where an adviser died with no succession plan. We’ve seen it happen.”
Commonwealth Financial of Waltham, Mass., over the past 12 months has been “ramping up” its efforts in succession planning, including hiring an executive dedicated to the area, said Joni Youngwirth, vice president of practice management.
The effort has paid off. In a year, the number of reps with succession plans in place has increased to 300, from 20.
A new rep is in place to take over the clients’ accounts, she said. “If someone drops over, in 24 hours, we can change the spigot,” Ms. Youngwirth said.