Although Annapolis, Md., advisor Mike Scarborough's traditional services have long included investment management, retirement income management, estate planning and risk management, Scarborough says it was his focus on 401(k) and 403(b) savings plan management services (for clients participating in company-sponsored retirement plans) that helped set his firm apart.

Almost a quarter-century after founding Scarborough Capital Management, he and his staff work with individuals who hold retirement plan assets in more than 125 plans, ranging from Fortune 500 companies to small and midsize businesses.

Now Scarborough is handing the firm's reins to a team of internal successors.

"I started this company 25 years ago and we have about 11,000 individual clients today. Our AUM is $1.2 billion; GDC is $7.6 million. So, yes, it's been a success," says Scarborough. "I'm not ready to retire, but I am ready to let go of the business and hand it over," he adds.


The advisory firm will keep his name and continue in the same location, and he'll maintain a consulting relationship, says Scarborough, who adds that transitioning his firm to a group of internal successors has been on his mind for the past decade.

Here are his top tips for others considering a similar handoff.

1. Train and mentor buyers of the firm. While some advisory firms sell to an outside buyer, training an internal team can create a stronger connection with clients. “I agreed to sell the firm to a group of longtime employees,” Scarborough says, adding that four of the five originally joined the firm as interns. “Clients have been working with this team for some time now.”

2. Convert your practice to a fee-based business. Recurring revenue, in the form of AUM or retainer fees, is king, says Scarborough. Advisory firms are valued at a higher multiple on assets that produce recurring fee-based revenue, as opposed to one-time commission-based income. 

3. Be transparent with clients. When transitioning your firm and transferring ownership, RIAs are required from a regulatory standpoint to make the change clear to clients. “I doubt any of our clients will be surprised to get my letter about the ownership change,” Scarborough says, “but we’ll be sending a detailed, reassuring letter to one and all.”

4. Expect your attention to shift. After building a practice for decades, it's natural that you'll eventually want to move on and devote attention to other opportunities, says Scarborough; he plans to build up Retirement Management Systems -- a side business he established to help other financial advisors emulate his success with defined contribution plans-- and start a brewery to complement his wife’s vineyard and winery business. “This is not a retirement decision; I want to devote more of my time to running and building Retirement Management Systems. The brewery will be a fun sideline.”

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