Brokerage executives are confronting a big demographic headache.
About one-third of all advisors are expected to retire or otherwise exit the business in the next 10 years, according to data from Cerulli Associates. One might assume that a firm such as Edward Jones, which hired about 3,000 trainees for its recruiting program last year, might be immune from this issue. But Dalton Schumacher, Edward Jones principal of assets and office sharing, says the firm still faces the same problem as everyone else.
Here Schumacher talks about the firm's two-year-old advisor retirement plan and why advisors don't plan more for their own exits.
YOUR FIRM HAS BEEN GROWING BY RECRUITING NEW PEOPLE INTO THE INDUSTRY. HOW IS EDWARD JONES AFFECTED BY THIS ISSUE?
Edward Jones is probably better off than the industry, but not much better. One-third of our advisors are over age 50, so we want to make sure we get this right.
HOW DOES THE NEW PLAN IMPROVE ON THE OLD SYSTEM?
The old plan, we called it the traditional succession plan. It came out in the late 1990s, and what it amounted to was that financial advisors would split their revenues with each other as the veteran slowly exited the business.
[The new plan] helps us recognize our veteran financial advisors for their contribution to the clients and the firm over the years.
We wanted those practices to be in the hands of capable FAs. We don't want to overwhelm a financial advisor with another advisor's 30 years’ worth of clients.
HOW DO YOU DETERMINE WHETHER TO SPLIT THE ASSETS UP?
The first thing we do is make sure that they really want to retire. Once we establish that, we explain how the retirement plan works and ask about their branch and their clients. We want to understand the dynamics within that practice.
Then we ask our market-analysis group to do a deep dive [into] that advisor's practice and on that community. How many FAs do we have in that community? Where are those clients? Over time, an advisor's clients typically spread out. We want to make sure that the clients are deeply served in the market that they live in.
We start working on a plan and compensation. Then there's the execution of the plan and the closing of it out.
HOW DO YOU DETERMINE COMP?
Several factors. It starts off with their age as well as length of service, their assets and their revenue.
HOW MUCH DO THEY GET?
I'd rather not give you exact dollars or percentages, but we have looked at the industry and we are extremely competitive. Ours just looks a little different because we don't buy and sell books.
This might sound like a commercial, but most of our advisors who retire are partners in the firm. So they have a vested interested in Edward Jones. I think that helps create a better outcome for the clients [in the] long term.
DO THEY GET INCOME AS PARTNERS?
They do. As long as the firm is profitable and makes money, those profits are shared with the people who own the firm. If an advisor retires and is a partner, as many are, then they would receive that income for the rest of their lives.
HOW DO YOU DETERMINE WHO GETS THE CLIENTS?
We are going to look at the size of the practice. Do we have the opportunity to create new offices in this market?
We'll look at the competencies of the advisor. The reality is that some clients are more complex than other clients.
If you look at any advisor's practice, there are complex relationships at the top and smaller ones at the bottom. We don't necessarily want to take a complex relationship and give it to a brand- new advisor. We want the transition to be as smooth as possible. It's a balancing act because those clients are going to go through a transition, and that can be uncomfortable.
WHAT IS THE BIGGEST HURDLE IN THIS PROCESS?
If you think about it, this is a FA's last hurrah. It's very emotional for them. This is their lifelong work. [They develop] deep, long relationships with clients that turn out to be their friends. It's an emotional thing to go through. It's a lot different than just getting a watch from a large company.
WHAT SHOULD OLDER ADVSIORS KNOW ABOUT RETIREMENT?
It's almost like a light switch. Once they make that decision to retire, they want to move right now. You'll hear things like, 'How soon can we get this started?'
That's why we have that legacy-building workshop [for advisors nearing retirement], so we can get people thinking about it as we go down the road.
FAs spend their whole career helping other people retire, but I don't think they give themselves as much attention.
WHY DON'T THEY PAY MORE ATTENTION?
I think it's, 'I've spent my whole life building this practice’ [and] that it's hard to walk from that. It's like giving up their children for adoption.
I was an FA for 17 years before I came into the home office. I had very strong [client] relationships. I went to weddings and funerals and bar mitzvahs. I felt part of their family. It's a hard thing to walk away from.
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