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Many successful advisors are being courted by competing firms or exploring the option of moving to a new home. And with the average age of advisors in the investment industry hovering around 50, according to various industry surveys, an important consideration for advisors looking to make a move may be how a potential new employer handles succession planning.
There’s a spectrum of approaches. While some firms control the process, dictating terms with little room for negotiation, others leave pretty much everything up to the advisor – from finding a successor to setting terms to transition a book of business. Yet, many firms fall somewhere in the middle – and there’s a spectrum within there, too.
At Toronto-based independent investment dealer Richardson Wealth Ltd., advisors have full flexibility to choose their successor as long as the choice is in the clients’ best interests and doesn’t raise any compliance issues. Both advisors negotiate the price and payment structure directly while the firm acts as the agent representing both parties and providing advice along the way.
“The advisor is in the driver’s seat,” says Mike Ankers, senior vice-president, head of advisor experience and growth, at the firm. “Instead of us saying, ‘Here’s our program that you must conform to,’ we say, ‘What would you like to do and how can we help?’”
He points out that Richardson Wealth’s priority is in the longevity of client relationships, so when advisors retire, a primary objective is to make sure they leave the industry feeling accomplished, respected and successful. Ideally, even in retirement, they continue to be “advocates” of the firm.
And while the firm offers advisors support with finding a successor, it rarely gets the chance. Typically, by the time Mr. Ankers hears of a succession plan, the seller has already identified a buyer with similar values and work ethic, who has the capacity to provide excellent service to clients. Trust generally matters more than price.
“The last, best piece of advice that you give to your clients is who to deal with next,” Mr. Ankers says. “Clients, over years, become friends. If you and I have worked together for 30 years, I don’t want to give you to the highest bidder to work with next.”
How advisors’ equity stake affects succession planning
Vancouver-based Leith Wheeler Investment Counsel Ltd. takes a different approach, putting advisors’ equity stake in the private company at the centre of the succession planning process. When the time comes to leave, advisors simply sell the shares they own over a period of 10 years.
“We’re not commissions-oriented or bonus-oriented,” says Jon Palfrey, managing principal, portfolio manager, private clients and foundations at the firm. “[Advisors] are evaluated on their contribution to the firm, overall, and [that determines] how much of the company they should own. So, it’s not [as] at other places, where they’re paid to sell or transition their book to others.”
Because retiring advisors remain shareholders for a decade after their departure, they have a long-term interest in ensuring the transition goes smoothly. The firm also requires a minimum of three years’ notice so there’s time to get the right people in place to support every client.
Clients work with two portfolio managers from the start at Leith Wheeler, so continuity is built in – but one person can’t take on two people’s workload.
“I work with the outgoing or retiring portfolio manager to come up with their thoughts on who the incoming portfolio manager should be, and then balance that against our resources and make sure it fits all the way around,” Mr. Palfrey says. “It’s very collaborative with the clients’ well-being in mind.”
Working with clients jointly
Vancouver-based full-service wealth manager Nicola Wealth Management Ltd. takes a similar approach in that it has two advisors with complementary skill sets and personality types working on most client files, so there’s a natural successor in place at all times. When one advisor retires, the second stays on and a new advisor joins the team.
“[This structure] really lends itself well to succession planning if there are two advisors on that file, as long as they’re not both planning to retire at exactly the same time,” says Cameron Smith, vice president of advisory services and client relationship manager at the firm. “We’re pretty deliberate to partner people who wouldn’t be in the same stage of their careers.”
Associates who join Nicola Wealth sign an agreement that articulates the mechanics of joint file work and the financial arrangement when someone retires. Generally, a portion of revenue is paid to the departing advisor over a five-year period. Gradually, that revenue is reallocated from the advisor who brought the client into the firm to the person who has been working alongside that advisor and the new addition to the team.
“There’s no negotiated price … There’s no big financial transaction that occurs and there’s no buy-out or anything like that,” Mr. Smith says.
Many advisors got into the business to make a difference in their clients’ lives, he adds, and having a solid succession plan in place is part of securing their legacy.
“If your motivation was to empower people and make their lives better, you don’t just want to simply step away and have uncertainty as to what the outcome will be for them going forward,” he says.
“It’s a tremendous feeling of satisfaction and happiness that you leave things in really good order.”
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