When it comes to retirement, one would think that financial advisors would be as meticulous with their own personal retirement planning as they are with that of their valued client base. This has too often rarely been the case, though, and nowhere is this more evident than in the sunset programs many a wirehouse advisor has agreed to.
These programs have stacked the deck in favor of the wirehouse and are structured in such a way that advisors are leaving money on the table and not realizing the full value of their book of business. It’s time advisors take a step back and analyze the matter with a more critical eye.
When looking at the structure of wirehouse succession deals, the financial flaws are notable. It doesn't matter which program you analyze, the same negative financial outcomes for the advisor hold true in each case.
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The wirehouse will take 3% — or up to $4,000 per month — of advisors' production in 2019.
November 1 -
The forthcoming changes will build on digital investments the firm has made recently, according to an executive.
July 30 -
The wirehouse has experienced rapid growth in advisor productivity, executives say.
December 13 -
The move puts the Swiss bank more in sync with practices at regional brokerages.
September 13
First, wirehouse succession programs, on average, calculate an advisor's book of business at only half the actual value — a paltry sum when you consider the sweat equity, financial acumen, and customer relationships which go into achieving this body of work. Also, wirehouses orchestrate their succession deals to insure a long goodbye for their advisors, normally under a three- to five-year payout cycle. Additionally, the deals are structured as regular income which has huge tax implications for the retiring advisor. Ultimately, what the wirehouse advisor is left with when it comes to their retirement is no sunset at all, but a long, dark night of missed opportunity and a retirement not on their own terms but someone else's.
Things get even stickier when you consider the advisor who will be inheriting a book of business from an outgoing senior advisor. In true wirehouse fashion, the inheriting advisors are often slapped with non-solicitation and non-compete agreements upon receiving the retiring advisor's clients, which means no matter how awful things might get at the firm, management knows the advisor cannot move to another firm with those assets. Combine this with the flawed deal received by the retiring advisor and what you have left is a game of smoke and mirrors which, once the air clears, leaves only the wirehouse with any real financial benefit.
Now, some advisors may prefer the wirehouse offer because the lack of desire to work any harder than they currently are at this stage in their careers, or they’ve bought into firm products over the years and now find it hard to unwind those connections if they leave, or they have more personal reasons like health issues that make it more of a daunting task.
Our annual analysis of starting payouts for wirehouse, regional and national brokerage firms.
But because of the aforementioned flaws in wirehouse succession plans, some brokers have been looking beyond the big firms to sound out the offers available in the independent channel where there is a sizable purchasing pool of independent firms eager to grow via acquisition.
Some advisors are simply selling their book of business outright to an independent firm. Although an outright sale and immediate retirement (fewer than 3 years) comes with a discount to the typical two-times to three-times multiple, a retiring advisor can still benefit to going into a more competitive market. There are also tax benefits for making the transition as an independent advisor (here you should consultant with an appropriate tax professional, of course).
That advisors, even those who’ve spent decades at the same wirehouse, would explore such options shouldn’t surprise. An advisor's book of business is their most prized, and lucrative, asset. And it has taken them years to cultivate and grow it. When it comes to retirement and succession planning, there is only one shot to get it right.
