You spend countless hours helping your clients get ready to retire.
You coach them on how to structure their investments to maintain the lifestyle they desire.
You help them with Social Security, possibly Medicare. You may even offer counsel on where to live.
But what about you?
Almost every advisor I talk to has a single answer to this question: “When do you plan to retire?”
“They will carry me out of here. I love what I do.”
That’s all well and good, but sooner or later the inevitable dynamics of life take over. You will decide to retire, or you will have to retire.
In this article, I will discuss some things you should be thinking about as you prepare your own retirement readiness. As you read it, you will discover a reference to additional resources. We have created a retirement readiness page just for you, which is www.billgoodmarketing.com/FA-Retirement-Readiness.
What’s Your Business Worth?
This is where you start.
There is a very rough formula in the independent/RIA sector to determine the value of your business. The wirehouse firms each have their separate formulas. If you are in a wirehouse, you should also use this formula, just to check.
The formula is: 2.2 x T-12 fees + 1.1 x T-12 commissions.
This is not hard. It’s not complex algebra.
T-12 = trailing 12 months.
Let’s say you have a practice with $1 million in gross revenue; $500,000 in fees and $500,000 in commissions.
2.2 x T-12 fees = $1,100,000.
1.1 x T-12 commission = $550,000.
Rough value = $1.6 million or so.
The math obviously is easy. The implications are profound.
By converting to fees, $1.6 million becomes $2.2 million. Again, more or less.
There are challenges here. According to “The State of Retail Wealth Management,” a Mackenzie/PriceMetrix study, fee-based revenue as of 2017 was 63%. Only 46% of households had fee accounts. (I have posted a link to this study on our “FA Retirement Readiness” page, which provides some other interesting benchmarks.)
We have developed a strategy to help you do this. If you are not yet 90%-plus fees and you are over a certain age, it’s important to get on with it for several reasons, not the least of which is that you can improve the value of the company, which sooner or later will be passed on to a family member or sold.
Vital Factors to Enhance Value
There are many. Let’s concentrate on three.
1. A client retention strategy
Your objective in preparing your own retirement is to take steps to ensure the clients remain with the practice. Your buyer or heir’s objective is retaining the clients. That’s what they bought. That’s what you get paid on.
On our FA Retirement Readiness page, I have posted a copy of our justly famous “Client Relationship Retention Formula,” one of the best client management systems in the industry.
I would suggest that you hike over there immediately, download it, study it and get to work.
2. An effective team who will remain after you leave
This is vital. You may have an assistant who has been with you 25 years, and when you leave, he or she will leave. Not good. As you plan for the next 25 years, you may have to build a new team around this person.
Make no mistake about it: In a properly configured financial advisor office, primary relationship management is done by the team. It is a total mistake to think that you, the financial advisor, is the relationship manager. You are the financial doctor.
To the extent you have the right people in the right seats on the right bus going in the right direction, you have an enormous leg up already in client retention. If you don’t have this, you have a lot of work to do to make your business as valuable as possible.
3. A office branded as a financial advisor’s office
This may seem relatively trivial, but it is not.
In the last several weeks, I’ve seen photos of at least a dozen advisors’ offices. Most of them have a look I would only describe as “modern clinical.” They have gray walls, a desk and two chairs, in some cases, not even a picture of their family on the wall.
On our FA Retirement Readiness page, we have posted a vital document for you, “Staging the Office.”
Your referral prospects are easy. Your client Bob tells his brother-in-law Billy, “Now you go talk to Jim and do what he says. Otherwise, I know you and Marge will buy a boat or something stupid. Here’s his number. Call him.”
Billy walks into your office and says, “Bob told me to talk to you about Marg’s $400,000 inheritance. What should we do?”
Your non-referral prospects are much more difficult today than ever. Proper branding of your office is vital in selling your service as well as selling your practice.