From the July 2006 issue of Wealth Manager Web • Subscribe!

About David X

This is the story of David X, a real advisor who, for this article, prefers a fictitious name. When asked if I could share his story with you, he smiled and said he'd rather not boast but, if it would help his peers, he'd be happy to oblige. I've been studying successful advisors for many years and think his story is worthwhile. Allow me to tell you his tale.

David entered the financial planning profession about 20 years ago. In those days, a broker-dealer affiliation with a sales orientation was really the only game in town. Over the years, as the profession grew and evolved, he began shifting to a fee-based business model, working as best he could within the broker-dealer constraints. Today, he works on a fee-only basis, offering financial planning and investment management services to an affluent clientele.

But unlike a good many advisors who struggle on well into their Social Security years, David, now age 62, is selling his business and retiring worry-free. Using conservative retirement capital projections, this methodical planner has determined that he and his wife will be financially secure for the rest of their lives. They'll enjoy their time vacationing in Hawaii, spending time with their grandkids, or puttering around their second home.

The business he built over the past 22 years was just sold for a price in excess of 2.5 times revenue. When the purchase agreement was implemented at the beginning of this year, David began officially transitioning relationships to the new owner's client service team. "Last year, I started dropping hints in my newsletter and at meetings. I'd mention my gray hair and talk up the client service team and the two other advisors who were being positioned to step in when I was ready. I want to be sure my clients are completely comfortable with the evolution. I've never really said 'I'm retiring.' I just started promoting the new team concept and taking more trips."

Since the purchase is partially based on an earn-out over the next five years, client retention is critical. However, David has no doubts that his clients--who are prone to giving him a spontaneous hug at the end of a meeting--will stick with the firm and refer new business to it. "I'm counting on that," he says. "My family and I will benefit from the added investments and referrals."

Now into the seventh month of official transition, David and the new client service team have met with about half of his 85 clients. "I've been delighted," he chuckles. "Even though I've built a real relationship business, the clients can see the depth of service that the new team will bring. In fact, they probably get even better service than ever before."

The first year of transition will be fairly intensive, according to David. He meets every Monday morning with the client service team--an executive assistant and the two advisors--to bring them up to speed on the clients who are coming in that week. When the clients arrive, David meets them in the lobby and walks them by the support staff's desks, introducing them as they go. After visiting for a bit in his office, the two other advisors stop by and join the conversation. "These guys are really good, and the clients immediately know they have a great team to rely on," he says.

Full Progression

Over the past 20 years, David has made a full progression: From commissions to fees; to adopting a system that kept things simple for him; to embracing technology and creating a business that allowed him to spend all the time he wanted with his clients and his family. He built a business with $35 million under management and 85 clients while working 20 to 25 hours a week for the past few years. His net income has been approximately $350,000 a year.

While many advisors have become slaves to their practice, chasing assets and struggling to develop systems to support the assets, David and his wife have been to Hawaii 16 times and find plenty of time to garden, restore old roadsters and take their grandchildren to Disneyland.

"When I talk with other advisors, most of whom are a bit younger than I--typically in their 50s--they tell me they're working 50 or 60 hours a week. They may boast significant assets under management, have a large number of clients and a larger staff to assist them. They may even enjoy about the same net income as my family does. However, most of these advisors lack the time they need to meet all their business demands--let alone live a full and rich life outside of work. Some are fed up and getting burned out."

While it appears that some advisors seem to be caught up in growth for the sake of growth, for David, it wasn't all about growth of assets; it was about balancing current income and personal time while carefully building the value of his business. The differences between David's situation and the average advisor's are astonishing. So how has he been able to do this?

The commonly accepted wisdom in our business says that advisors must add overhead and staff if they are to grow. Rebel that he is, David has always kept overhead low. In fact, he never worked with an assistant until earlier this year when the new client service team began the business transition strategy. Before he became a financial advisor, David was a successful realtor co-owning a residential real estate agency and, at its peak, managing 20 staff members and agents. "I knew I didn't want any more employees after that," David quips.

While David has always been an "early adopter," embracing the best technology as it came along, he has held to as simple a system as possible. "People used to kid me about the three by five index-card system I used successfully for many years. It kept me on top of client birthdays and assorted business tasks. It worked, and I didn't get sucked into trying to learn one new time management system after another."

Things have changed dramatically since his index-card days, though. When he first began his transition to fees in 1992, he and a handful of his colleagues were some of the first to embrace what is now sometimes referred to as a "virtual ensemble." By doing so, he was able to outsource essentially all business functions--except for client relationship management and marketing activities--to another RIA who provided those business solutions to other advisors. The virtual ensemble provided David with all the benefits of being part of a substantially larger firm, yet he enjoyed the total independence of owning and operating his own business. All he needed was an Internet connection and a phone.

David did not pursue growth for growth's sake. Instead, he looked for and brought on only the right clients. He readily admits that he could have "easily taken on" more than 85 client relationships, "but that would have meant more hours in the office, and I wasn't willing to do that," he says.

Since I've known David for over 20 years, and have been proud to watch the progression of his career, it didn't surprise me when he told a journalist who called that he always knew what he wanted his business to look like. He continually refined his vision of where he wanted to be--and worked to achieve it. "I knew I wanted to build something that I could sell, that I was building a business, not a practice," he said. "Everything I've done has been by design."

X-Factor Advice

o Keep your systems simple. Ideally, use just one system and stick with it until you are sure something better has come along. The first exception you make creates a whole new system. Before you know it, things can spiral out of control.

o Outsource as much as you can. Outsource or delegate everything but the client relationships and networking activities. You likely got into the business to work with clients; you'll become more miserable the further away you move from that objective.

o Move to fees and reach 100 percent as soon as possible. Talk to other advisors who've done it quickly and well, and model your transition on theirs. Make the commitment and do it. Don't rationalize and don't compromise; it's too expensive and time consuming to get stuck in transition.

o Be clear about where you want to go. Take some time away from the office to think and plan. Rent a room at the beach for the day--whatever removes you from your normal environment and relaxes your mind. Take a notebook and a pen. Leave your phone and Blackberry at home.

o If you want to sell your business for the highest price possible, start building value now. Streamline and systemize everything you can. Position your business well ahead of your target date; stuff happens, and your timetable could be moved up drastically under stressful circumstances.

o Talk with other successful, like-minded advisors on a regular basis. Join a study group--or form one of your own. Glean all the collective wisdom from their best practices. Give your time and insights, too.

o When it's time to phase down, start dropping hints to your clients and positioning your successor well ahead of time. Don't say you're going to retire; just take more trips and get the clients used to working with the new person or team. The less you change, the greater your client retention rate will be.

o If you can, find a "built-in buyer" (in my case, it was another member of the virtual ensemble)--someone who uses the same systems and solutions you do. Since the changes to the client are minimal, this built-in buyer is very likely to be willing to pay a premium price for your business.

o Ask yourself: Am I running my business? Or is it running me? If there's not enough of you to go around, things will get old pretty quickly. You'll feel tired and drained. The tighter your system is, the more you can handle--but never lose sight of what got you into this business in the first place. Ask yourself where you'd like to be in the next few years. Are you taking steps today that will help to get you there? --BH

Brent Hicks, CFP, is a financial planning veteran and a fee-based pioneer. He is the founder and President of FocusPoint Solutions, (

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