Commonwealth Independent Advisor

Scaling Back: 4 Steps for Transitioning Clients as You Near Retirement

Posted by Liam O'Shea

March 6, 2019 at 1:30 PM

transitioning clientsFor many advisors, the decision to retire is complicated, mainly because it involves transitioning clients, some of whom have become dear friends, to another advisor or sometimes even to another firm. It’s hard to let go of those relationships, and so you stay in the business past your traditional retirement age. But continuing to work comes with a unique set of challenges, including a declining level of energy and mental acuity as you age and dissatisfaction among your successors, who want to step into leadership roles.

That’s not to say you have to retire today, but if retirement is in your near future—say, within five years—you might consider scaling back your involvement. Not only will you reach a better work/life balance, but you’ll uncover opportunities for other advisors in your firm to grow. Consider these suggestions from my colleague Angela Sarver and I to help you make the best choices for yourself and your clients.

Step 1: What Do You Want to Do?

Think about your individual goals and your goals for your practice. If you’ve reached the point where you’ve decided to slow down, you’ll need to answer the following questions:

  • What will you do in your free time?
  • What will your workweek look like?
  • Where will you spend your time? On the lake during summer? Down South in winter?
  • Have you thought about a retirement date?

By understanding what you’re looking to accomplish personally, you can better evaluate what you want for your business.

Once you have a better understanding of what your life will look like during its next phase, you can evaluate your income needs.

  • How will the continued income from your practice fund your personal goals?
  • If you have a retirement date in mind, how much must you save to be financially prepared by that date?

The answers to the many questions you consider will establish a decision-making foundation for what comes next. If you’re clear about what you want, you can be objective in evaluating clients and transition options.

Step 2: Which Clients Fit into Your Plan?

Now that you’ve created an outline for your own future, use it to decide with which clients you will continue to work. Start by determining goals for your practice and book.

  • What service model do you want to provide?
  • Which clients will benefit most from that service model?
  • How much time will you spend with clients?

The definition of your client and service model should be informed by the goals you identified in step one. You might even build a business plan for the next one, three, or five years to arrive at this definition.

After defining your ideal client and service model, it’s time to evaluate your existing book of clients to determine who fits the model you’ve defined. By the way, have you noticed that, although you’re halfway through step two, it’s the first time you’ll be reviewing your client list?

If you had begun the process by evaluating clients, you would have been influenced by too many outside factors. Some clients have been with you for a long time. Others were referred by friends. Still others are people you see regularly in the community. These are all factors to consider. But by first getting a clear picture of your goals outside of work, as well as your personal income needs and service model, you can better put relationship factors into their proper context.

Step 3: How Will You Transition Clients Who Don’t Fit into Your Plan?

Now that you know with whom you can work, you need to consider how the remaining clients will be cared for. You have various options for doing this.

Hire an advisor. Bringing another advisor into your firm is one possibility. This option makes the transition easier for clients because their experience won’t change dramatically. They will travel to the same office, see the same staff members, and be familiar with the overall process.

The challenge with bringing a rainmaker on board is setting proper expectations. The new advisor may join the firm thinking he or she is your built-in successor. That could happen in the future, but it may not be a certainty. You need to discuss this issue up front to ensure that everyone is on the same page. You will also need to understand the advisor’s motivation in joining your firm and whether transitioning clients will be appropriate given his or her goals.

Sell a portion of your book. This option can offset the reduced production the business owner experiences in working with fewer clients. Advisors often search for a buyer with whom they have synergy regarding service and investment model, services provided, and values. In such instances, the advisor enters into a formal succession agreement or contract that outlines the terms of the deal and how the transition will be completed.

Refer clients to another advisor. During the client categorization process of step two, advisors may identify clients for whom their services are no longer a fit. In these situations, it may be advantageous to refer the clients to another advisor rather than bring a new advisor into the firm. This option would allow clients to choose an advisor who is better able to assist them.

Transition the clients to a service advisor. Service advisors work with existing clients by deepening and extending the relationships. They are not expected to build a book of their own. As with hiring an advisor, this experience is familiar to clients and the transition from lead advisor to service advisor can be seamless.

But if the service advisor will eventually be the successor, certain challenges must be addressed to ensure that the practice remains viable. For example, the service advisor is likely to have limited experience running a practice and will need to deepen his or her understanding of the CEO role. A service advisor is also likely to have limited sales experience because he or she hasn’t had to hone that skill. By providing extensive training, you can better prepare the service advisors for a larger role. Keep in mind, however, that such training typically takes more time than you would estimate. Start the process early if you intend to make the service advisor your successor.

Step 4: How Will You Communicate Your Decision?

You’ve arrived at the final step in the process. It’s time to tell clients about your decision. The goal of your discussion is twofold: to inform clients about the change and to ensure that they understand why the change is taking place and how it will benefit them. One approach could be to explain that you’re moving in a different direction and that your new business model will no longer suit your clients’ needs. This may be especially true if, in reviewing your client service matrix, you change or eliminate services for any client level.

You can also make it clear that your decision was based on doing what’s in your clients’ best interests. Communicate that you’ve gone to great lengths to find another advisor in whom you have confidence and who is better suited to serve them based on their needs and goals. (If transitioning clients to another advisor, be sure that your CRM notes are detailed and up to date. Sharing what you know about clients can lay the foundation for the new advisor to build relationships.)

You may also have clients who are related to one another, and going forward, you can only work with some family members but not with all. In such cases, telephone or face-to-face conversations will allow you to communicate your exact message and avoid potential misunderstandings and hurt feelings.

Because It’s Not Just a Job

For many advisors, this isn’t just a job or a practice. Their years of work speak to their passion for, and the satisfaction gained from, helping others. Advisors reach a point when they are ready to slow down but still want to pursue this passion.

If you find yourself in this preretirement mind-set, consider the steps that we have outlined above. By slowing the pace and allowing others to share in your commitment to help, you can find the perfect work/life balance.

Transitioning clients to another advisor or firm isn’t always easy, but it is a necessary step as you begin to scale back your involvement in the business. Have you undertaken an exercise like this? What were your biggest challenges? Your greatest successes? Please share below!

From Theory to Practice: Complimentary Consulting to Evolve Your Business

Topics: Practice Management

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