As many financial advisors approach retirement age, they need to think about succession planning as well as what they will do after they stop working, according to Christine Timms, a retired investment advisor in Toronto. Timms, who has written three handbooks for financial advisors, including Transitioning Clients and the Retirement Exit Decision, worked as an advisor for more than 30 years, primarily with CIBC Wood Gundy. She transitioned her client book several years ago to two advisors on her team.
During an interview with Investment Executive, Timms stressed the importance of planning ahead. (The interview has been condensed and edited.)
Q Why is thinking about life in retirement so difficult?
Timms: Most advisors really enjoy advising; it has been a huge part of their life and identity. There are services available to help professionals and business owners, such as advisors, analyze their personal interests and priorities to determine what they need to do to be happy and feel fulfilled in retirement.
As for my journey, I discovered that I liked writing early on. About 10 years into my career, I began thinking that I might want to write practice management books, but I didn’t want to take time away from my family or my clients. So, that interest turned into my goal for when I retired.
While advisors work on deciding how and when to retire, they can begin to systematically cut back on their hours worked or begin taking longer vacations. I found that this approach helped me, my team and my family adjust gradually.
Q Has the Covid-19 pandemic had any impact on advisor retirement trends?
Timms: The pandemic has made most people feel more vulnerable to potential health issues, probably inspiring advisors to at least plan for business continuity. Also, advisors will have learned a bit about themselves from spending extended periods in lockdown. This may inspire some advisors to retire earlier, whereas others may develop a new appreciation for the in-person interaction of going to work every day, thereby waiting longer to retire.
Some advisors who were close to retirement might have delayed their plans to see their clients through the crisis or because they want to introduce their successors through in-person meetings with clients.
Q In the succession planning process you’ve developed [see sidebar below: 18 succession steps for retiring advisors], what’s a crucial first step?
Timms: The advisor can help themselves and those they are working with by articulating their business model as well as the services their clients are accustomed to receiving — in the form of communications, investment selection, financial planning and tax planning. Examples of the information include the number of households, revenue produced and assets under management. Advisors should also be able to break down some client characteristics, such as age and gender.
This can be one method of describing to others what the advisor does, and can even help them decide what kind of successor they’re looking for. They also can use it to outline what they would change — for example, going more fee-based or diversifying portfolios more. The advisor can later request that a prospective successor fill out a similar checklist so the retiring advisor can understand their potential successor’s process and compatibility.
Also, advisors should maintain a good contact management system that will be transferable to a successor. The system would have notes about past and future client interaction, making picking up where the exiting advisor left off easier for a future successor.
Q What are some of the toughest steps, and your advice in those areas?
Timms: The first seven steps of my retirement exit process lead up to and include the choice of the successor, the toughest step but the most important.
The toughest of the remaining 11 steps is probably establishing a business transition timeline, and my best advice is to keep it somewhat flexible. Furthermore, determining the future of each team member as well as the roles of remaining team members can be very difficult. So, I recommend a lot of communication among all involved.
Q What are your tips for drafting business transition contracts?
Timms: A lot of firms will have materials to use for a basic starting point. It’s easiest if you don’t have to start from scratch, but you also could go to a lawyer who’s worked on these contracts before. In either case, you always should review succession contracts with an external lawyer.
Getting support from your firm is key because firms may have book-transition requirements due to obligations to clients. All three parties — the advisor who’s retiring, the successor and the clients — have to be satisfied.
Q When is the right time to tell clients, and how long should the transition period be?
Timms: An advisor can inspire confidence among clients by informing them of another advisor or team member who will be there for them in an emergency and when the advisor eventually retires. But you can’t talk to clients too far in advance of having a plan because there will be too many questions, and you need to absolutely have the answers before thinking about talking with clients.
Clients should be advised of the advisor’s actual retirement date far enough in advance to allow for a full-year transition overlap period, allowing for annual reviews for each client. This also will prove to clients, while they still have access to the retiring advisor, that the successor can handle the workload. If a full year is not possible, I suggest that the overlap period include high service times, such as tax-loss selling periods, tax reporting and RRSP/TFSA/RESP high-contribution periods. Even if the retiring advisor’s team is taking over, I would suggest six months, so clients can get used to the forthcoming change.
Life after advising: Finding your purpose
Before you begin thinking about retirement and picking a date, you should examine what kind of person you are and how that will shape your goals, said Susan Latremoille, a retired financial advisor who is now a partner with financial services coaching firm Next Chapter Lifestyle Advisors in Toronto.
Latremoille and her partner, Marianne Oehser, work with both financial services professionals and their clients. Latremoille and Oehser found that members of both groups often hold off retiring because of non-financial fears and uncertainty. “If you just ask people what their interests are and their goals are, you get more of a bucket list that’s short-term in nature,” Latremoille said. “What we do first is a deep dive into [people’s] behavioural DNA.” She and Oehser use a tool called SuccessFinder, which assesses personality, motivations and priorities based on 85 traits.
Most advisors and professionals, for example, tend to be very purpose- and career-driven, so they may choose to start a business after formally retiring and continue helping people, Latremoille said. Yet, some people are highly motivated by humanitarianism and their community, and lean more toward volunteering on a board.
Through this assessment and other exercises, “we work with [advisors] to craft their purpose statement and a [non-financial] happiness ‘portfolio,’” Latremoille said. The happiness portfolio covers eight areas, including family, community and overall wellness. Part of the process is optional quarterly reviews — Next Chapter has one client who has stayed with them for five years.
Latremoille refers to retirement as a time when people need to “rewire” and “create a better balance in life.” The post-work phase must have meaning for advisors for them to be happy with their business transition experience.
18 succession steps for retiring advisors
After a career spent helping clients prepare for retirement, your turn to retire has arrived. Christine Timms offers an 18-step plan to ensure you, your clients and your successor experience a smooth transition:
- Clarify your commitment to your clients
- Articulate and document your business model
- Determine the best business model for your clients
- Determine the best fee structure for your clients
- Decide how much information to share with a prospective successor
- Decide whether you will need one or more successors
- Search for and choose a successor or successors
- Plan a timeline for your retirement and book transition
- Compare products and services with your successor
- Determine the future of your team members and include them in the conversation
- Plan the roles of all of your successors’ team members
- Plan the office space
- Review or create a website and marketing materials
- Create business transition contracts
- Prepare client conversation scripts
- Notify clients of your intention to retire
- Plan and provide a period of overlapping service
- Notify clients of your final exit date
© Christine Timms, 2021. (For more information and downloadable resources, visit Christinetimms.com)