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Why you should figure out retirement before the succession plan

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Most people who use advisers want to ensure that they will have enough money to last the rest of their lives after retirement.

But advisers, too, should seek advice in planning their own retirements, says Michael Oechsli, chief executive at Oechsli Institute in Greensboro, North Carolina.

An outside perspective is often needed so that advisers are clear about what they really want during retirement, he says.

“The first question the adviser considering leaving a practice needs to answer is, ‘why?’” Oechsli says.

The other related question that advisers must answer is, “Will I have enough money to retire?” he says.

Answering this question requires the same kind of rigor that advisers use with clients, yet most advisers “tend to be overly optimistic regarding the impact that the sale of a practice will have on their retirement years,” Oechsli says.

His recommendation: “Do the math. Think in terms of the down payment you’re likely to receive [usually one-third of purchase price], the terms of financing, the duration of financing -- typically three to six years -- and the tax consequences. As a rule, the standard rate of a well-run profitable financial practice is 2 times revenue.“

The same kind of rigor should be applied to estimating income to expect from a succession plan in which the adviser continues working in a more limited role.

“You need to be honest with yourself from the outset: Am I the type of person who feels without work I’m nothing so I need to work until I die?” says Rick Rummage, chief executive and founder of The Rummage Group, an adviser training firm in Herndon, Virginia.

“Am I someone who loves my work but also loves my family and other activities, so I’d like to slowly reduce the amount of advising work I do? Or is financial advising just a job and when I have enough money I just want to retire and do what I love?” Rummage suggests advisers ask themselves.

“A lot of advisers really don’t know their options, but the beauty of this industry is you don’t ever have to fully retire,” he says.

“You can decide how many hours you want to work,” Rummage says. “Not many professions allow that.”

Michael Kitces agrees, suggesting that one reason so few advisers have succession plans even in their 60s is that most realize that they are “financially better off staying in their practices than selling them,” and in any case “find their advisory work a professional vocation so personally fulfilling they wouldn’t want to leave it anyway.”

his is especially true if the practice can be adjusted, for example, by hiring a junior adviser or a partner to handle some of the workload.

Kitces, a CFP, is a partner and director of wealth management at Pinnacle Advisory Group in Columbia, Maryland; co-founder of the XY Planning Network; and publisher of the planning blog, Nerd’s Eye View.

The key is knowing what you want and then planning for it.

“There’s no one right answer, as long as the answer is clear,” Oechsli says.

This story is part of a 30-30 series on smarter succession planning

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