Unlike our parents who typically worked their entire careers for one firm and then received a lifelong pension, we are largely 401(k)- and personal savings-dependent. The assets in these accounts in many cases have been greatly diminished. Ironically, financial advisors—those charged with helping others plan for their retirement—now find their own plans in greater disarray than most of their clients.
Needless to say, many advisors had a high concentration of financial service stock in their portfolios and these were among the most devastated issues. Typically, this lack of diversification was not chosen, but was rather a by-product of their firms compensation systems. If you worked for XYZ firm, you received the firm's stock often and in a variety of ways. Shares came your way in both liquid and illiquid forms, but most of us held on. We found ourselves caught up in a massive bull market in these shares that felt never-ending. Most of us failed to hedge, sell or properly diversify. We failed to follow the advice we were regularly giving to our clients.
Sadly, some advisors I know averaged down during the slide, hoping to lower their cost basis and salvage their retirement nest eggs. Why? Because we are bold, true believers and risk takers. But previous huge winners like Lehman Brothers, Bear Stearns, Citi, Merrill Lynch, and even Morgan Stanley did not do what they were supposed to do. Now we are recalculating and moving on to Plan B.
According to most surveys , the average age of a financial consultant is north of 50, meaning this retirement dilemma is a very real and current issue for many of our readers. So what are some of the best new strategies in process or in the planning stage?
The most obvious reaction is to change firms and reload. Many have moved, and perhaps a larger group is considering changing firms as a means of replenishing their retirement war chests. If one is willing to remain committed to the business for another decade, the transitional compensation you might receive will likely exceed any available sale price.
Top producers are commanding record deals in today's market. Upfront offers are 150% plus, and combined with the follow-on bonuses, deals are exceeding 300%. Considering that books of business are fetching two to three times revenue in the open market, today's deals compare favorably. So far, those who have waited to move have seen the deals increase. It is hard to believe that the deal pot could grow richer, but many of us have been saying that for some time. However, the bigger question for an older advisor might be the terms of these arrangements. Those signing on with new firms and receiving these record packages are committing to nine or 10 years of time at their new organization.
If the money sounds interesting, but 10 more years is out of the question, what are your alternatives? If you are like a lot of people I talk to, you want or perhaps need to keep working, but making a long-term commitment at this point seems unreasonable. Maybe you envision a future were you can wind down, while keeping a hand in the game indefinitely. If you fall in this camp, it is probably time to find a partner or join a team.
It is never easy to find the right match, but the pool of talented unemployed or underemployed prospects has rarely been deeper. Assuming there is no agreeable partnering opportunity in your branch, it is a great time to work with your manager to hire your very own number two. Offering the ultimate opportunity, your book and the associated career, you should be able to sort through the best and brightest job seekers. Bear in mind optimal results will require a substantial initial involvement on your part, but working hard with the right rookie can allow you to ultimately craft your ideal situation.
As your new partner becomes more experienced, you can be in a position to enjoy a more flexible schedule. Maybe you will opt for a four-day week or plan to enjoy more travel, knowing that your competent and trusted partner is at the helm. After years of going it alone, developing the right partnership can be very liberating.
As you relinquish more responsibility, it is common to proportionally increase your partner's percentage compensation. When you are ready to finally retire, most firms have sunset arrangements in place that will allow you to continue to participate in your book's revenue for a few more years. Each firm has its own conditions and requirements for its version of your sunset.