What to Consider When a Financial Advisor Retires

That’s why I was surprised the other day when Crystal rang my phone. “There is a woman on the phone who is very nervous. She says her financier is retiring and has sold his business to a company that isn’t here and that she’s never heard of.” I said, “Okay, do you want to send her to Jess?” the planner in my team. “I will,” she replied, “but she’s really sweet and very nervous. Can you just talk to her for a few minutes?” I never say no to Crystal, so I said, “Sure, put her through.”

Crystal was spot on as always. The woman on the phone was very nice and very nervous. She said she didn’t really understand the reports she had conducted with the retired professional and that without the expertise of the company that recommended the products, she feared for her retirement. I said we would take a look and put them on the schedule ourselves; I would deal with Jess’ anger later.

As I started thinking about the call, I thought it might be a good time to talk about what happens when a financial advisor, investment advisor or other financial professional decides to retire and sell their practice.

At Oak Partners we have been involved in five external practice acquisitions, always as buyers. Two of the acquired practices were located out of state. The financial services firm and the regulators that oversee the industry have mechanisms in place to facilitate the transfer of client accounts between advisory firms if the process is documented through properly structured agreements between the parties.

Many financial products such as mutual funds and annuities pay ongoing service revenue to the advisor who originally recommended the product and provides ongoing service and advice to the customer. Of course, fiduciary advisors charge asset management and/or planning fees. Both sources of income have value. The customer information associated with products, planning and account management is also valuable. When a practice is sold, an agreed amount is placed on these value centers and exchanged between the buyer and seller and, after a process, the customer accounts are then assigned to the new consulting and service company. But what then?

Well, as a traditional buyer, we believe the real work begins now. While the arrangement with the seller may have resulted in the accounts being assigned to our company, there are very few financial products or account types that require customers to switch to a new company or advisor. When a practice is bought or sold, clients remain free to choose an advisor or service provider that they believe meets their needs, subject to a few considerations.

First, the licensing associated with the customer’s accounts and products must be considered. The products the woman on the phone were talking about were annuity contracts. This would mean that any company she chooses would have to have insurance-certified professionals who could be appointed as service representatives for her contracts. In other cases, accounts may involve securities or fiduciary fee structures, which also require specific regulatory registrations. Therefore, it is important to understand what types of firms and advisors can help with the products and investments the client currently owns.

The second consideration is more of an advice. I would be wary of a company or consultant that immediately suggests drastic changes to products or planning. Financial products can be complex and may involve exit or sales charges that need to be understood. Additionally, the customer must have found their current products or investments suitable or attractive at some point, and I believe it is important to understand what features or benefits influenced the original decision making. So when considering advisor options, start with the pause button on big changes.

Finally, while practice acquisition agreements can transfer accounts, revenue, and data, relationships cannot be transferred. Relationships must be built from the ground up on a foundation of understanding and hopefully trust between the customer and the new company.

Of course, I believe that the relationship between financial advisor and client is one of the most important professional and often personal relationships in life. Regardless of any agreements between sellers and buyers of financial practices, clients are always free to focus on the relationships that work for them and their planning.