That John Bowden sr. is still putting in full days at his Toronto-based insurance underwriting firm at the age of 75 is not the only fact that makes him exceptional. Another reason he stands out is that he is among the mere 12% of financial advisors who have a succession plan in place.

With 54 years of experience in the financial services industry, Bowden, who heads Bowden Group Chartered Life Underwriters, has no plans for slowing down.

“I have health, I enjoy what I do and I have great relationships with my clients,” he says. “I don’t know what retirement is.”

But that positive attitude hasn’t stopped Bowden from preparing his business for what would happen should he suddenly fall ill or “stop a truck,” as he puts it. He knows that taking care of his clients and his business means having in place a trained, qualified professional to take over when he is no longer there. For that reason, he has put the pieces in place for a swift, smooth transition: his two full-time assistants have well-formed relationships with his 850-odd clients, his files are organized and up to date, and a number of his associates have agreed to step up to the plate in his absence.

More important, Bowden has talked with clients about what will happen when he finally decides to bow out of the industry: “It’s the least I could do for them. They’ve been good to me all these years, so why wouldn’t I want to make sure they’re taken care of?”

Although Bowden’s succession plan is far from perfect — he hasn’t put a price on his book and there is no set retirement date, for starters — it is a step in the right direction, particularly in an industry in which the vast majority of advisors are lacking a formal retirement strategy.

According to a 2005 survey of 1,000 advisors by Toronto-based consulting firm Advisor Impact Inc. , a mere 12% had a succession plan in place. Among those who were planning to retire within the next five years, only 20% had a plan. At the same time, almost 90% of those surveyed reported they had specific goals for the dollar value of their practices at retirement.

Succession planning is complicated by the shortage of trained advisors entering the industry, says LIMRA International Inc. , an insurance and market research association with offices around the world. A recent LIMRA study reports that Canada’s career companies — the ones that traditionally recruit and train new advisors — declined in number to 15 in 2005 from 48 in 1989. Subsequently, the number of career agents has declined — by 37% in the same period. So while more and more advisors are planning to retire, fewer advisors are coming into the business to take their place.

“It’s one of the basics of supply and demand,” says Rob Kochel, vice president of national accounts at Toronto-based AIM Funds Management Inc. “If all these advisors are the same age — and they are — and they want to retire within the next 10 years, the supply of businesses is going to be huge and the demand is going to be small.

“Some of these advisors are looking at this as their nest egg for the golden years. But they haven’t thought it through,” he adds.

It doesn’t help that the majority of advisors are waiting until the eleventh hour to create a plan. “Most advisors think succession planning is a simple tactical issue that they don’t have to deal with until right before retirement,” says Julie Littlechild, president of Advisor Impact. “This is bolstered by the fact that advisors see businesses being bought and sold all the time without considering the amount of work that goes into the process. These advisors aren’t going to be around forever, and they need to start planning.”

There’s no question the financial services industry is getting greyer. According to figures released by Advocis, the average Canadian advisor is 49 years old (52 in Ontario), an age that will climb dramatically — to 57 — by 2009.

This trend is affecting small-business owners at large. A report published by Statistics Canada last year stated the number of self-employed adults aged 55 to 64 and nearing retirement is growing at a rate of 7.5% a year — double the growth rate in 1990. The same study indicates one-fifth of small-business owners are planning to retire in the next five years, and another 30% of them will do so by 2020.

@page_break@“Within the next 15 years, more than half of current small-business owners are going to retire. It’s a huge issue that’s affecting the advisory industry just as much as it’s affecting everyone else,” says Terry Zavitz, president of Terry Zavitz Life Insurance Inc. in London, Ont.

Zavitz is also chairwoman of the recruitment, apprenticeship, mentorship and succession committee, an Advocis-led initiative aimed at advisors leaving the business as well as those coming into it. The committee is designed to pair new advisors with seasoned professionals, not only to introduce rookies to the business but also to create a ready-made pool of advisors who will be poised to buy the books of those exiting the industry.

“With the lack of career shops, there’s a lack in recruitment. We really don’t have the proper number of people coming into this industry,” says Zavitz. “Seasoned advisors have a vested interest in bringing in new advisors so they have an avenue for planning their succession.”

For their part, most firms on the Street are starting to pay attention to attracting more advisors. Yet, although the investment dealers surveyed in Investment Executive’s 2006 Brokerage Report Card say they are actively recruiting, many are interested only in bringing in experienced brokers. Edward Jones and bank-owned dealers ScotiaMcLeod Inc. and National Bank Financial Ltd. are the exception. All three firms are specifically targeting rookies and offer an extensive training program to get new recruits up and running.

The three firms are also slightly more progressive when it comes to helping their advisors retire, probably because they are focused on retaining client assets. Take Edward Jones, for instance. Although the average age of an Edward Jones advisor is 43 — well below the industry average — the firm is expecting to see a pickup in retirement planning over the next 10 years as many advisors cross the 55-year-old mark.

Edward Jones has a three-year process that encourages the outgoing advisor to choose his or her successor. Both advisors work in the same branch during the transition. Revenue is split 70/30 between the retiring advisor and the incoming advisor in Year 1, 50/50 in Year 2 and 30/70 in Year 3. All branch expenses are split evenly.

The key to an effective succession plan is ensuring the new advisor has time to adjust to the new business, says Gary Reamey, principal and head of Edward Jones’ Canadian division in Mississauga, Ont. “This is a three-year transition, as opposed to ‘sell the book, get the cheque and you’re out the door’,” he explains.

And because advisors have an opportunity to participate in the firm’s limited partnership offering, their ties to the company last well past retirement, Reamey says. It’s in the advisor’s best interest, therefore, to ensure that the incoming advisor is well suited to the business, and many retiring advisors act as consultants after they have officially retired.

Who looks after our books?

Winnipeg-based Wellington West Capital Inc. rolled out its retirement plan in the fall of 2005 in an effort to get advisors to start thinking about the future of their businesses. “I’ve noticed a change in the way advisors are thinking about succession planning, and it probably has a lot to do with the baby boomers getting older,” says Doug Haydock, regional vice president of Wellington West in Toronto and the person who designed the retirement program. “All of a sudden advisors are asking, ‘Can we decide who looks after our books? What’s going to happen to me when I leave the firm?’”

As with Edward Jones, Wellington West advisors, with the assistance of the branch manager, choose who will take over their books. The outgoing advisor receives a percentage of the average of three years’ production; the percentage is based on the branch manager’s assessment of the book and the likelihood that the business can be maintained by the purchaser. The transition period lasts from three months to two years, Haydock says.

Wellington West’s retirement plan comes in a seven-page booklet that advisors can print and hold on to for future reference. Simplicity is key, Haydock says.

“Retirement is a pretty emotional time for everyone. We have to make sure it stays personalized for the advisor, as well as his or her clients, and at the same time keep it clean and simple,” he says. “So it’s up to us to step in and give retiring advisors the guidelines, to show them how they might want to determine the value of their book — and to make sure the transition makes sense for all parties.”

Although more firms are taking their cues to develop a formal succession plan for their advisors, facing up to retirement is often difficult — particularly for those who haven’t planned in advance.

“It’s not uncommon at all for advisors to ignore the problem,” says Kochel. “Quite frankly, their whole day is spent looking after everyone else and making sure they have people prepared for retirement. So, when it comes to looking after themselves, they’re last on the list.”

What’s more, retirement may be a frightening prospect for aging advisors who have built their practice from scratch. “If you’re defined by what you do and suddenly you don’t do that any more, who are you now?” says Kochel. “It’s scary, especially if advisors never really thought about the life they’re going to have when they retire.”

So, what’s the solution? Don’t use scare tactics, says Peter Wouters, national director of tax and estate planning at Empire Financial Group in Toronto. Wouters has been delivering presentations on succession planning for a number of months and says there’s a growing sense among advisors that this is something they will have to start thinking about sooner rather than later.

“One thing firms should be doing is simply bringing succession planning top of mind,” he says. “Have a seminar, give a presentation — just talk to them to let them know what’s going on, and that all is not lost.”

As for Bowden, he offers the following advice: “I doubt there’s a perfect way to plan for retirement. My motivation is making sure my clients have a comfortable transition. If you can’t save the client relationship, you have nothing.” IE





Take the initial steps to successful succession



With approximately 50% of the advisor population poised to retire by 2020, selling a book of business is expected to become increasingly difficult.

“This has become a buyer’s market,” says Peter Wouters, national director of tax and estate planning at Empire Financial Group in Toronto.

“With all the sellers out there,” he says, “advisors are going to need to look around the corner and put plans in place right now to differentiate themselves from others, to add real value to their businesses and truly build equity.”

The first step is to think like a buyer, Wouters says: “You have to look at the things that a prudent investor — a potential buyer — would be looking for. You may think that what you’re doing in your business is valuable, but buyers are going to need proof. They want something that helps them verify that the business is solid.”

Here are some tips for setting your practice apart:

> Start now. You don’t have to be retiring tomorrow to prepare your business for sale. It could take up to five years to implement a strategy, says Julie Littlechild, president of Toronto-based Advisor Impact Inc.

Start now by putting practices in place that will make your business attractive to potential buyers. Consider these issues: do you have a competent support staff in place; is the practice insured; are you in regular contact with your clients; are your files up to date?

“If you can demonstrate to a buyer that you’re actually running a business — you have procedures in place, there are checkpoints, it’s compliant, you know your clients — then your business will stand apart from the others,” says Wouters.

> Make it a strategic buy. Take a look at your book to identify any niche markets. If you cater to a specific type of client — say, women entrepreneurs — then you’re more likely to attract a buyer who wants to specialize in that particular area. Market your practice accordingly, Wouters says.

“If it’s strategically important for someone to buy a block of business, two things will happen automatically,” he says. “It will reduce the number of advisors that may be interested in buying your book, but it will also dramatically increase the price.”

> Make the business quantifiable. Keeping tabs on key statistics shows potential buyers that you take a businesslike approach to your practice. Track information such as the average size of client account, average client age, how often you get paid (level commissions vs heap commissions) and how much business you write in any given year, as well as how much of it sticks.

Remember: bigger doesn’t necessarily mean better. Buyers will be much more impressed by a small book of business that generates regular revenue than a book of 1,000 clients who bring in little or no business, Wouters says.

> Consider the risks. “People are beginning to look at an advisory practice the same way they’re looking any other business, and they’re trying to assess the risks,” says Littlechild.

For instance, potential buyers may shy away from a book if they think the client base isn’t stable. Consider conducting a client satisfaction survey to gauge the likelihood of them staying put once the business is sold. Share your findings with potential buyers.

> Prepare to stick around. It could take months, even years, for the incoming advisor to adjust to the business and develop a solid client/advisor relationship. Work out a contractual agreement stipulating that you will be around in a full- or part-time capacity for a set period of time.

“It’s key,” says Wouters. “The toughest part of the transaction is the transition to the new advisor from the old advisor. Good advisors recognize that they’re the glue in the operation. They won’t be thinking, ‘I’m going to sell my book, move to Florida and never look back’.” IE