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An Advisor’s Last Challenge: Bowing Out Gracefully

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One of my first jobs involved writing obituaries and reading them on the air for a small-time radio station in Michigan’s Upper Peninsula. At the same time I reported for a local newspaper on the region’s big happenings, mainly nuptials and mishaps.

New beginnings were always fun to write about because they were so filled with hope and excitement. Crises caused by injury, illness and loss were perplexing and sad, but sometimes inspiring depending on how the victims responded to the challenge. The stories that moved me the most, however, were celebrations of lives well lived — not in terms of monetary wealth or status, but rich in meaningful experiences and positive interactions with others.

Recently I received an email from David Bugen, one of the founding partners of Regent Atlantic in Morristown, New Jersey, about his decision to retire from the business. It was one of the most uplifting retirement announcements I have ever seen. Not only did he eloquently and thoughtfully call out the individuals who made the biggest impact on his career as a financial advisor and business owner, he inspired readers with a description of his “encore career.” Clearly he is not retiring at all. Bugen shared his plans to work with the Leadership Academy at Rutgers University, the Blair Academy LEADS initiative, the Afghan Girls Financial Assistance Fund and the Rutgers wrestling team, all while enrolling in a variety of college courses.

Several years ago, Bugen started crafting his transition plan with the assistance of Mark Hurley of Fiduciary Network and the support of his partners and associates. His first challenge was to resolve his ownership position in the business, which Hurley helped with. Then Bugen addressed the transition of his clients and the replacement of his leadership duties. Throughout this process he kept a watchful eye on how his plan to depart the firm might be impacting his colleagues and his clients so that he could manage through the natural tensions.

At the same time, Bugen prepared himself financially and emotionally to live without the exhilaration of running a large advisory firm, where he enjoyed delivering advice that impacted many people and generating the healthy income that comes from being a senior person in a successful business.

Bugen’s successful transition is an exception, unfortunately. In my experience, having met with thousands of financial advisors around the globe, people in this profession tend to die with their boots on. Most advisory firms are small businesses and many owners don’t have the skill set, resources or desire to manage their transitions properly. However, in the context of fiduciary duty, a proper transition ensures that one is acting in clients’ best interests. Advisors like to say that clients depend on them for everything — yet somehow that commitment doesn’t always extend to how clients are served after the advisor departs.

Recently, I participated in a discussion where the topic of developing the next generation of talent arose. The founder of one firm said, “The good news is that won’t be my problem.” In other words, why should he worry if he can get his money out of his practice and let the new owners invest in the development and recruitment of staff? He was speaking tongue-in-cheek, of course, but I sensed the same thought on the minds of many. While this insouciance may not be bad in and of itself, it is not reasonable to expect a premium price for equity when one leaves behind a practice with an uncertain future.

Another trend I see is founders who wish to retain an equity position in the business, collecting dividends or other income distributions even though they work just a few hours a week. Initially this may come as a relief to the younger advisors who don’t have the capital to buy out the biggest shareholder, but eventually it becomes a point of resentment. In my opinion, independent advisory firms (like most service businesses) do not lend themselves well to passive shareholders.

We often hear people complain about how they “work for the government” until May, which is the break-even point on their taxes. This same bitterness can arise in advisory firms, taking on an even more personal sting as hardworking advisors see and feel the money they earn going to somebody else.

Of course, the older advisor resents this attitude because he created the business, hired the employees, converted the prospects to clients and built the brand. In his mind, decades of blood, sweat and tears earned him the right to come in, hang around and skim off some income, even if he no longer contributes. In my opinion, advisors who have checked out of their business are a lot like fish and houseguests: After a couple of days, they start to stink up the house and everybody wants them gone as quickly as possible.

To strike the right balance, as Bugen did, aging advisors must engineer a graceful exit. Such a plan requires attention to some big questions. First, what would it take for you to be fulfilled apart from your role at the firm? Second, what do you need financially and emotionally to relinquish control of management, clients and ownership? Third, what is your responsibility to partners and employees, clients and vendors, to ensure that the business continues after you depart?

One of my mentors once asked me to imagine myself at my 75th birthday party. He suggested that I envision what I would want my colleagues, employees, friends and relatives to say as they toasted me on the quality of my life, my work and my impact on my community. Then he challenged me to ask myself whether I deserved the praise I desired and if there was anything I should change to achieve my vision.

Advisory firm leaders may want to try the same exercise, adding: “How can I make sure that my exit is as positive and satisfying as my career?” While one should not make decisions based on the approval of others, a deliberately planned and consciously executed retirement strategy will earn the respect of those you leave in charge of your firm and fulfill the trust of clients whom you served well. Knowing you built a business to last yields a taste to savor for the rest of your days.

— Check out Are You Zooming In or Zooming Out? Challenging Conventional Strategic Planning on ThinkAdvisor.

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