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Retirement Planning > Retirement Investing

The Fast Track: Advisor, Heal Thyself

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One of the most important elements of 2009, I tell the advisors I work with daily, is to contact each of their clients, and revise their financial plans in light of new realities created by the mortgage meltdown. Even when the conclusions are bad news–having to delay retirement, cut back current spending, revising the estate, or even re-entering the job market–knowing exactly what they are facing and what they have to do about it almost always offers more peace of mind than vague fears and being left to the mercy of one’s imagination. Working to face down the crisis together also not-so-subtly reminds your clients that you are on their side when they need you most: at time when many of their friends will probably be re-evaluating the value of their financial advice.

An equally important part of my advice to my advisor/clients these days is that they revise their own financial plans, as well. Like most professionals, financial advisors aren’t particularly good at using their expertise on themselves, often doing little or cursory planning for their own retirement. All my clients have plans–mostly because I make them do one, and revise it at regular intervals, usually every two years or so.

Just like you, they don’t really have the time to do this, but they take the time anyway. Their whole practice management strategy is based on it. But regardless of when you last revised your plan, or even if you don’t have more than a vague notion of your exit strategy, it’s essential that you take time that you don’t have right now, and take a very hard look at how the down market of 2008 will affect your retirement plans–to determine what steps you need to start taking today to be in the best position for an all-too-close tomorrow.

As a starting point, it’s hard to imagine that your practice revenues aren’t down substantially, like virtually every other advisor on the planet. In some practices, client portfolios are down as much as 40% or more. While profits aren’t all that meaningful in small, closely held businesses, with revenues down, and most expenses such as staff salaries and rent fixed, chances are advisory practice owners are taking home a lot less, too. And since many of your major expenses at home are fixed as well–the mortgage, cars payments, tuition, etc.–that means many advisors will be putting less into their retirement plans.

Advisor Portfolios Have Been Hit Too

Unfortunately, that’s not the only negative effect on advisors’ retirement plans that we’re seeing these days. As with your clients, your retirement portfolios have probably taken a substantial hit as both the equity and bond markets fell during 2008, which means that just like your clients, there’s a strong likelihood your financial projections are way off, too. Of course, as the markets recover, which they always have done in the past, hopefully those paper losses will be recovered. But if you’ve moved out of some of your original asset classes, you’ll have to decide to buy back in to benefit from the ride back up. And

even if you are able to stick with a buy-and-hold strategy through the meltdown, the recovery will undoubtedly take time, reducing the compounding effects of dividends, interest, and asset appreciation.

The bottom line is that for many advisors’ retirement portfolios, the time horizon of your projections will be extended out, at the very least.

What’s more, these days many owner/advisors’ exit strategies are based on the projected value of the client assets under management in their practices. With those assets substantially down, along with the corresponding revenues, practice values (which are usually a function of those revenues) are off as well. Again, as markets eventually recover, those client assets should, too, as they have done in the past. But, how long that will take is anybody’s guess, and in the meantime, it’s fair to say that the value of many advisory practices will be down significantly, extending retirement time horizons as well as the size of your nest egg, particularly if, like many baby boomer advisors, you were planning on packing it in some time soon.

The silver lining in this somewhat dismal scenario is that independent advisory practices offer their owners a great deal of flexibility both in their working time horizons and in their management strategies. Consequently, rather than just battening down the hatches and riding out the storm as many businesses have to do these days, owner/advisors have myriad options at their disposal to respond to our new economic environment, and create a future that’s more to their liking. Here are some of things you might consider, as you quantify how your retirement plans have been affected, to soften the blow, and get your exit strategy back on a more acceptable track:

Working Longer

Just as you’re probably advising some of your clients, the most obvious consideration, of course, is to keep working in your practice longer than you planned. The good news is that most independent advisors have created very close to an ideal working environment for themselves–they enjoy their clients, treat their employees like family, have flexible hours, with relatively low stress, etc.–so the prospect of delaying their retirement isn’t really much of a burden. In fact, usually the problem with advisors is that, despite their plans and what they’ve told co-workers and family, they have a very difficult time actually pulling the plug. The current situation will merely afford them one more excuse for extending the time they hang around the office. As added incentive to put off retirement (if that’s necessary), the next few years are probably not a good time to be leaving your clients without the professional they need most. Not only is it a bad time to transition clients to a new advisor, many advisors today will find it extremely difficult to do anything but stick around and help their clients make some hard choices and work through how this market downturn affects their lives.

Working More

Advisors who weren’t yet thinking about retiring completely, but were planning to cut back on the hours they work, the number of clients they handle or both also might want to reconsider that decision. As I said above, this is not the time to be leaving even some of your clients. And it’s probably not a good time to be further reducing your income, either. You might also consider that during difficult times like these, your employees and junior partners benefit from your presence around the office: it’s also not a good time for them to lose your experience, wisdom, and guidance.

Reduce Expenses

I’m not a big fan of radical cost-cutting in advisory practices during tough economic times: the last thing you want to do right now is to cut back on the level of service you offer your clients. If anything, now is the time to enhance their high-touch experience with you and your firm. There are some moves you need to think about, though. Putting major projects such as new offices or computer systems should probably be back-burnered. More importantly, it is a good time to re-evaluate your employees. I know it’s harsh to let people go in a bad job market. Yet, in my experience, the economic boom that advisors have ridden for the past seven years has enabled many advisors to avoid making hard choices about employees who aren’t a good fit, or pulling their weight. We don’t really have that luxury anymore. You don’t have the time, energy, or resources to deal with chronic problem staffers: the money your paying them can be better spent rewarding people who are really stepping up to today’s challenges. For the sake of your hardworking staff and ultimately your clients, it really is time to lose the deadwood.

Reconsider Selling in the Immediate Future

With assets, revenues, and practice values down, it’s just not a good time to sell an advisory practice if you don’t have to. I suppose this might be the time to consider another side of working longer, but most advisors find pulling the trigger on selling the firm they founded hard enough, without the additional disincentives of lower values and needier clients. Conversely, tough economic times tend to cause some advisors to decide to sell earlier than they planned. If you have health issues, or just don’t have the energy to deal with the increased workload of handholding nervous clients, it’s probably better for all concerned to turn your clients over to someone who can meet their increased needs.

Grow Your Practice

Many advisors I know have been quite content with the size of their practices and the lifestyle it provides them. I’ve even noticed a backlash of resentment to the occasional suggestion that advisors aren’t really successful unless their practices are growing. Yet, for many advisors today probably the best response to lower incomes and disrupted retirement projections is to adopt a strategy to grow their firms. The good news is that now’s a great time to do just that. With unhappy clients leaving stockbrokers and other advisors, it’s not unusual for an independent advisor to be flooded with new clients. Usually all it takes is for an advisor to slightly increase their already high-touch service to ensure that the current needs of their existing clients are being met, and then to sit back and reap the referrals. Be sure to control your growth, though: taking on too many new clients too fast can be just as crippling to a practice as falling revenues.

In addition to settling your own fears about the future, looking at the effects of the market meltdown on their retirement can help advisors relate to what their clients are currently going through. It’s one thing to advise your clients to do it, but quite another working through revising retirement plans for yourself. There’s probably no better way to start a client meeting today than: “I reviewed my own financial plan the other day, and…” Clients feel better when they know their advisors are practicing what they preach.

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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