smiling middle aged man in office

“Do as I say; not as I do.” that could well be the motto of many financial advisors who spend much of their time helping their clients plan for retirement, yet are inadequately prepared to retire themselves.

You might have a vision of what your life will look like during retirement, says April-Lynn Levitt, certified financial planner (CFP) and business coach with the Personal Coach in Oakville, Ont. But you may not have put concrete measures in place to ensure you will realize your vision. At the same time, you may not be emotionally prepared to walk away from the business you built over decades.

In fact, only a slender minority of advisors have documented retirement plans, according to George Hartman, CEO of Market Logics Inc. in Toronto: “No more than two out of 10 advisors have written retirement plans. But they would never allow their clients to go without a plan.” (See story on page 20.)

Much has been written about succession planning for advisors, a necessary process in ensuring that you will be adequately compensated and your practice will continue after you leave the business. (See story on page 18.) But succession planning is just one component of your strategy to leave your profession and enjoy a fulfilling retirement, whatever that means to you.

Prem Malik, a 64-year-old financial advisor with Queensbury Securities Inc. in Toronto, for example, expects to retire in a few years, but he does not have a written retirement plan. He isn’t worried about leaving his practice, he says, because he doesn’t have to search for a buyer for his book of business – a process that can take several years. Malik plans to transfer his book to one of his sons, who also works in the investment industry.

“I will stick around for a few years during the transition,” Malik says, “and continue to serve some of my larger clients before heading off into the sunset to play golf and travel.”

The ability to transfer a book to a qualified child is what Hartman calls “an entrepreneur’s dream.” In most cases, he says, advisors are not as fortunate as Malik in having an interested and capable family member to take over their book of business.

Malik is financially prepared to retire and his “plans” are all in his head. “The only thing I have to think about,” he says, “is that I get sufficient income from my investments when I retire.”

When an advisor decides to retire, Hartman says, two major dimensions of his or her life situation must be aligned: the financial capacity and the emotional enthusiasm about retirement.

Financial capacity

“A lot of advisors cannot afford to retire if they want to maintain the lifestyle they enjoyed while working,” Hartman says.

Some advisors’ financial readiness is compromised by a “spend according to what you earn” model, practised during their working years, which results in lifestyle fluctuations based on the success in a particular year. Unless these advisors have built a retirement income strategy, their emotional enthusiasm to retire will be dampened by their financial incapacity to retire.

Emotional issues

Even if you’re financially capable of retiring, you could find doing so difficult from an emotional perspective.

“It is difficult to give up and walk away from a business you may have spent 25 years building,” Hartman says.

You probably have established many trusting relationships and friendships. Many of your clients may still depend on you for advice, leaving you with a sense of obligation toward these clients.

Stephen Scatterty, branch manager of Insch Wealth Management in Bowmanville, Ont. (which operates under the umbrella of Markham, Ont.-based Worldsource Financial Management Inc.), is 56 years old and has been thinking about retiring. But he is reluctant to part from his team and some of his clients.

“I can’t see myself walking away from the business or selling it to the highest bidder,” Scatterty says. “There is a certain sense of pride attached to building a business that has employed people for the past 25 years. I feel a certain sense of responsibility to ensure that the business survives beyond my eventual retirement. I owe it to the people that make it a success every day to pay attention to their future without me being around every day.”

So, having a plan in place to ensure clients’ and employees’ needs will be looked after is both good for business and good for your post-retirement emotional well-being.

But even if you have managed the succession of your business, learning to identify yourself as a retiree rather than an advisor can be difficult, according to Levitt. You may find that giving up the “good life” of an advisor – the financial rewards, your independence, and the respect and recognition you have earned in the community – is emotionally challenging.

Although looking forward to hanging up your boots may seem natural to you, as it does for many of your clients, you may not know what you’ll do with your time once you retire.

“What will advisors do after three, four or five years [of retirement] is a challenging question,” Hartman says.

Scatterty simply does not yet feel compelled to retire: “I haven’t found that thing that gives me more meaning and purpose than what I do now. Psychologically, I don’t feel I am prepared to retire and I just can’t imagine myself doing anything else or doing nothing right now. There is some internal drive that keeps me coming in early and staying late after 25 years.”

Phased retirement

Some advisors postpone retirement and remain connected to their practice on a part-time basis or through reduced involvement.

“They do this for either financial or emotional reasons,” Hartman says.

One popular option is to focus on your top 50 clients and sell the rest of your book. But the success of that strategy depends on market conditions, Hartman says, because, based on the Pareto principle, 80% of revenue is derived from the top 20% of clients. Therefore, the portion of your book you decide to sell may not be readily marketable because of this distribution of revenue.

Some advisors choose to “phase into retirement” by doing volunteer work while still working, Levitt says. You could get involved in community groups, for example, or mentor young businesspeople. Such activities may prepare you to make use of your spare time once you retire completely.

“The advisors I’ve seen who have the most success in retiring are those who develop interests and engage in hobbies, travel and volunteer activities while they are working,” Scatterty says. “They have developed teams to manage the business and clients’ expectations while they gradually step back. In a sense, they orchestrate their own exit, often taking years to [make the] transition out of the business.”

But although some advisors may spend time planning for retirement, their plans may hit a roadblock that calls for a change in plans.

After 25 years as a financial planner, Paul Ferguson, a 66-year-old CFP and chartered general accountant, sold his book of business to a colleague. The sale, which took place six years ago, “did not work out as well as l had planned,” Ferguson says.

As a result, Ferguson now sells group insurance under the banner of Paul Ferguson Financial Group Inc. in Hamilton, Ont. He considers himself semi-retired and works from his home office, having divested the investment component of his book.

With a dramatically reduced workweek, Ferguson says, he enjoys his new lifestyle: “I am financially prepared for retirement and enjoy what I’m doing. I golf all year-round, go on two to three trips a year and relax at the cottage.”

He also visits his clients regularly, many of whom have become his friends.

Ferguson also plays bridge and is active in his community, having done charitable work for projects such as a temporary residence for family members of patients of local hospitals, and for a local theatre and an art school.

Choosing the right time

Although Scatterty is not emotionally ready to retire just yet, he is financially prepared and is looking forward to retirement with enthusiasm.

Once that day comes, Scatterty says, he has a long list of things he plans to do, such as spending more time with his family and friends, going for extended cruises with his boat, taking a cross-Canada road trip and touring Europe.

Scatterty believes that without proper planning for retirement, some advisors could be forced to put their practices on the market for a quick sale because of health or other personal problems and could end up being shortchanged if market conditions are not favourable.

Hartman, for his part, warns against the risks of selling too soon. He recommends setting an “earliest possible” and “latest possible” time for exiting your business.

Also, he says, don’t fall into the trap of making excuses such as “I’m too young to retire” or “It’s too soon to plan.”

Levitt suggests hiring an expert to help you plan for retirement. “As an advisor, you can’t give full advice to yourself,” she says.

Two more notes. Be sure to include your spouse in your retirement planning process. And follow your own advice: “Start planning before it’s too late.”