A retirement victory lap guide for RIA founders

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The historical idea of retirement is outdated and makes people miserable.

That’s the premise of "Victory Lap Retirement," an excellent new book by Rob Morrison, Michael Drak and Jonathan Chevreau. Rob, a CFP and president of Huber Financial Advisors, is a friendly competitor from the Chicago area and a terrific advisor.

As people live longer — and are healthier longer — they now have an extended runway to enjoy financial independence. When they quit their jobs, they don't have to get bored, play too much golf, watch too much TV, eat too much junk food and drive their spouse (and financial advisor) nuts. Instead, they can be productive citizens and refocus their careers and energy on the things they really enjoy.

This, of course, is advice every good advisor has given their clients for years. But all too often advisors — especially RIA founders — fail to eat their own cooking.

Too often, our succession plans tend to be all-or-nothing. Founders either sell their firm in one big bite of the apple or, due to a lack of exit planning, have to work forever.

The first scenario usually involves a private equity or financial buyer acquiring a controlling interest in an advisory firm. Most buyers now pay 100% cash at closing. Inevitably, this means the typical founder sticks around for a couple of years and then is out. In the second scenario, a founder just keeps doing what they have always done — albeit at a slowed pace.

The average RIA founder is over 60 years old and many are like ostriches: They stick their heads in the sand, ignore the need for succession planning, ignore that their clients are aging, let organic growth slow to a crawl or even backslide, and have increasingly less fun and a waning interest in their business.

This can work for a while, but eventually, such founders end up with RIAs that resemble depleted oil wells.
There are other options.

For one, invest in A-list talent to do the jobs you don’t want to do. Most founders love our business. But that doesn’t mean they love all aspects of it. Once you are financially independent, maybe there is no actual need to sell. Instead, consider spending money to upgrade your staff. Hire specialists and professional managers to do all the things you are not as good at or that you do not enjoy.

One approach to a victory lap retirement for an RIA founder is to pay up so you can hire the best people to do everything you don’t enjoy. That way you can essentially retire from the tasks you don’t love and continue to work on the things you enjoy and would do for free.

Another solution is to partner with minority-interest patient capital. Most off-the-shelf acquirers are all-or-nothing and require you to give up control. But an emerging source of capital is family offices and other long-term sources of patient capital.

Unlike PE firms who typically want to take control of your firm, own it for three to five years and flip it to the highest bidder, patient capital often prefers to make minority investments, leave you (and your A-team) in charge, collect a pro-rata share of dividends and provide you sufficient liquidity to achieve financial independence without you having to sell out and sit on the beach or golf every day.

You’ll have financial independence while still growing, profiting from, and enjoying your business.
Another idea: Get off the dime regarding internal succession. If it’s critical that your name remains on the door and you must stay 100% independent, you may choose to create financial independence by transitioning a significant amount of your ownership to employees.

While this typically means you get a far lower multiple and may end up being the bank of last resort (or guarantor of real bank loans), this can provide a very slow glide path to an eventual retirement.

The big caveat is that internal succession often takes a minimum of 10 to 15 years. So, if remaining 100% independent is key, you likely have no time to waste. Get on it. Recruit next-generation team members with a significant appetite for risk who are willing to gradually buy your stock and do jobs that you no longer enjoy.

Finally: Mix and match. You could hire A-players, sell an interest to patient capital or merge with a larger RIA that can provide you both partial liquidity and concurrently provide equity opportunities to your key team.

Which option is best for you? Consider these questions:

  1. Are you already financially independent or do you need a liquidity event?
  2. How much time do you have to plan for your retirement?
  3. How important is it for you to remain 100% independent?
  4. Do you love what you do or would you prefer to hang your gloves up soon?
  5. Do you have successors that are willing to write big checks, do your heavy lifting, are capable of running your business, and willing to take on significant debt?

My advice for RIA owners is to be deliberate. The message of Morrison’s book is to avoid the traditional retirement trap where people get bored, become depressed and die early.

Instead, think hard and long about what success means to you and your family. You help clients with this each day. Try putting yourself first, create your ideal succession plan, and enjoy your own victory lap in retirement.

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Succession planning Retirement planning RIAs Longevity strategies M&A C-suite Savant Capital Management