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Practice Management > Compensation and Fees

Words of Wisdom

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Like many baby boomer financial advisors today, a number of my clients are approaching what you might call retirement age. Of course, these days, that doesn’t mean they want to quit working; just that they no longer need to work from a financial perspective, and they’re starting to think about devoting their time and still-abundant energies to other things they really want to do. They’re just not quite sure yet what those things are.

But again, like many advisors, they are sure that they want to spend a portion of their time and energy on some kind of a continuing relationship with their practices and/or the independent advisory community–to “give back” if you will, or at least use the knowledge, and experience, and possible wisdom that they’ve gained over years as advisors to help the firms they founded and the profession they helped create. Problem is, the existing opportunities to utilize their collective wisdom are rather meager. And if we don’t do something to rectify this situation sooner rather than later, we face the prospect of watching the experience of a whole generation literally walk out the door.

On an industry-wide front, there are many more ways to involve older advisors that so far have been unexplored. Currently, we have the well-publicized programs: mentoring through the FPA, boards of organizations, writing books, teaching local CFP programs, speaking at conferences, and management or marketing consulting. And these are all fine, as far as they go. But there are only so many seats on a national board, the mentoring program has limited capacity, ditto for CFP programs, being a consultant requires starting up another business (no party, let me tell you), and damn, do we really need another book on financial planning? Here’s a tip to would-be authors: Please be sure to have a truly unique message that other advisors both need–and want–to hear.

I’d like to suggest that the independent advisory community greatly expand its efforts to keep older advisors involved. On a small scale, “best practices” panels are always among the best attended sessions at industry conferences. I’d like to see the concept greatly expanded to more panels, forums, webcasts, etc. on specific topics such as ways to (and not to) grow a practice, buy a practice, manage employees, pick a partner, leave a partner–the list could go on and on. The tighter the focus, the more valuable, and useful the panels will be.

I’d also like to see our national organizations make a concerted effort to retain retired and older members. Perhaps discounted or even free memberships, and waived fees for attending industry conferences would reflect a small part of the value we put on their wisdom and experience. In fact, sessions at national conferences tailored to the needs and interests of older advisors would help to keep them coming. And then their attendance could be leveraged with programs where younger advisors could tap into their expertise. I’m sure there are a lot better ideas out there if we just put our minds to it. And I believe we really should.

One thing that’s always baffled me is why more industry organizations, broker/dealers, custodians, and product and service providers don’t make more of an effort to solicit the wants and needs of practicing advisors. Tapping into the retired, or nearly retired, advisor market with focus groups and advisory counsels, would be an excellent way to do this. For one thing, they have the time and the energy to be thoughtful in their responses. And for another, older folks tend to have far less inclination to pull their punches, or water down their responses, than do advisors who feel they have a relationship to protect. For organizations and companies who could benefit from honest feedback (and whether you know it or not, you could), older advisors could be a font of useful information.

At the advisory firm level, I realize that there are plenty of “good reasons” for why things are the way they are. We have a whole generation of mid-level financial advisors (folks with the experience and skills to work with their own clients) who have spent years watching their firm owners take the proverbial two-steps-forward-and one-step-back as they guided their practices to their current level of success. I know for a fact that for the most part, they are very grateful for the opportunity they’ve been given and for the success of their firms. But the world is changing, and strategies that have worked in the past will not necessarily be so effective in the high-tech, low-cost, ultra-competitive financial services industry of the future. Still, like every generation does, today’s junior partners and lead advisors are eager to take their turn at the helm, and make mistakes and successes of their own. So, in many cases, they’re not heartbroken to see the “old man” or “old lady” heading for greener pastures, as in out to pasture.

For their part, today’s owner/advisors contribute to being politely, but firmly, shown the door by their almost compulsive clinging to the lion’s share of firm equity and profits, while at the same time, doing less and less to generate firm revenues. This, of course, leads to the economic imbalance that causes junior advisors to leave and start their own firms, ill-will and distrust between generations of advisors, and the hastening of owner/advisors out the door. Call me crazy, but it seems to me that there has to be a better way to do business than this current dysfunctional situation, before the profession loses this current generation of venerable advisors forever.

Just suppose–and I know this way out on the lunatic fringe–that just as an experiment, owner/advisors temporarily put aside their in-my-day-we-lived-on-cat-food-to-start-this-firm mentality, and tried to see how they fit into the current economic realities of the practice. And junior partners try to make a real effort to get past their almost neurotic inability to admit that just maybe they don’t know everything and that keeping older advisors around is not an admission that they can’t do it themselves: only that they can do it better with a little help.

My guess is that the result of such a change in perspective would result in discovering myriad ways older advisors could continue to contribute to their firms for fair compensation, but without breaking the bank. There are, of course, traditional solutions (that is, traditional for other, more mature, industries) such as staying on as a paid consultant, or sitting on the firm’s board of directors, that will work fine for some situations. In others, the firm or the owner, or both, will want/need the advisor to take a more active role.

For instance, I can see older advisors staying on for the primary purpose of training younger advisors. In the current environment, where the growth of advisory practices is linked to adding young professionals, the success of many firms will depend on how well, and how fast, those young professionals can be trained to make a meaningful contribution to the firm. Today, only the largest firms have programs that accelerate this training to maximize the effectiveness of their professionals. One way that smaller firms could compete would be to use the expertise of their owner/advisors who want to slow down a little.

Another way owner/advisors could continue to substantially contribute would be to focus on rainmaking. This could be undertaken either full or part-time, with compensation tied to successfully signing up new clients, so it would in essence be self-financing. As older advisors usually have increased ties and activities in the local community–sitting on boards, charities, golf and bridge partners, and others–using those activities they would engage in anyway to attract new clients seems a no-brainer.

Likewise, owner/advisors often attend more industry functions, both locally, and across the county. This exposure to large numbers of other advisors could be used to look for potential candidates to fill open junior advisory positions (which they could then train). In fact, I could see an active older advisor bird-dogging prospective employee advisors, not only for their own firm, but for other local firms as well. And exposure to a broad array of other firms could also lead to identifying potential acquisition candidates, a strategy that gets more popular every year. And who better to work through the myriad details and issues involved in working out the acquisition of another firm.

And of course, graying owner/advisors might simply want to cut back their work load, focusing on a small core group of their clients, or on a tightly focused niche: say, elderly clients who need additional hand-holding. The key to make any of these continuing relationships work is for younger advisors to acknowledge the advantages of keeping their older peers around, and for owner/advisors to accept the economic reality that their decreased contributions–while still valuable–will require an appropriate adjustment in compensation and ownership.

I can tell you in the 30 years of my life (yep, hit the big 3-0 this month), I cannot count the number of elders who have been instrumental in keeping me out of trouble, even when they knew I wouldn’t admit that I was wrong or needed them around for ongoing mentorship. So, the bottom line is: Just make it work, guys. It will be so much better for everyone, young and old alike.

Angela Herbers is a virtual business manager and consultant for independent financial planning firms. She can be reached at [email protected].


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