From the March 2009 issue of Investment Advisor • Subscribe!

IA Soapbox: The Shoeless Cobbler

Investment advisors spend their professional careers planning and executing retirement strategies for their clients and their families. They use sophisticated tools and techniques to help them create intricate roadmaps for their clients to help them successfully navigate through retirement. The whole process begins years (sometimes 25 years or more) before the actual event of retirement from the work force takes place.

Isn't it a wonder, then, that with all of the knowledge and experience that financial advisors possess in the field of retirement planning that very few firm principals are prepared to deal with their own succession or retirement in a systematic, thorough fashion?

There are many common issues, both personal and professional, that are keeping today's advisors from properly preparing for their own retirement:

Lack of time. This seems to be one of the key issues that keep advisors from properly preparing themselves and their businesses for an eventual succession. Most principals are performing both front- and back-office duties to keep their business running, as well as trying to keep their personal lives in balance, which leaves little time for research and development of long-term succession strategies.

Lack of clear options. There are few clearly defined options for advisors looking to monetize their life's work. Information often needs to be pieced together through a complicated series of channels and professionals so as to assess the full array of options available.

Lack of suitable human capital. There are just not enough young advisors in our businesses today to count on recruiting a successor to fill the void left by a retiring principal.

Lack of liquidity. Even if an advisor finds a suitable buyer or successor to their business, the chances of that person obtaining the necessary financing from traditional lenders is slim to none.

Believe it or not, there are some advisors that have successfully navigated these roadblocks to create and use a defined transition strategy to address their own retirement goals. A successful succession planning process will mimic the financial planning model advisors use with their clients, including:

Defining goals. This is where the whole process starts. Principals need to put effort into defining and prioritizing their personal and professional succession goals in order to develop an optimal succession strategy. Reviewing a personal financial plan should give most principals a good starting point. Start where you would with clients by asking: "How much money will you need to comfortably live in retirement?"

Information collection and review. You need to know where you are and what your business is worth today in order to make the necessary changes/upgrades to get you to your "retirement goals." There are plenty of consultants and services that can help you review your current situation and give you valuation formulas and tools.

Creation of long term plan. After the goals have been established and the information has been collected and reviewed, its time to put pen to paper and develop a long-term action plan that will improve areas of weakness and position the firm and the principal for the eventual succession event. This is similar to a strategic business plan but with a focus on key succession strategy goals and benchmarks.

Ongoing review and updates. Just like a client's financial situation, a principal's situation may change as they work toward the eventual succession event date. The long-term action plan needs to be reviewed to ensure the greatest chance of success.

Try to keep this process as simple as possible at first, focusing on defining and detailing the personal and professional goals that must be met in order for the succession strategy to be a winner. If these goals are not clearly defined and thought through, the rest of the plan is probably useless. Proper preparation, planning, and review will alleviate most of the issues typically associated with your eventual ride off into the sunset.

Mark H. Penske

Chairman and CEO

United Advisors

Secaucus, New Jersey

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