With the average age of Brokerage Report Card respondents creeping up — to 46.5 years this year from about 45 in the 2005 survey — retirement is surely on the horizon for many. So, it is no surprise that brokers rated the importance of having a succession plan at 7.9 out of 10.
But when it comes to how well firms are delivering on those plans, scores are all over the board. And although some firms have plans, many advisors are unaware such plans are in place should they ever want to buy or sell books of business. By and large, however, the firms with the clearest policies were rated the highest by their advisors.
Take Winnipeg-based Wellington West Capital Inc. , for example. Its advisors rated the firm’s succession plan a 9.4, the highest score in the survey. The firm’s policy — which is clearly spelled out in a seven-page booklet — offers advisors the freedom and flexibility to sell their interest, wholly or partially, to anyone they wish. “Our brokers’ freedom on transition has really gotten us some good people,” says Charlie Spiring, Wellington West’s CEO and chairman.
Of course, it is in the firm’s best interest to ensure the assets remain in-house, so a critical part of Wellington West’s program is to help the buying broker finance the transition. The policy appears to be winning over advisors: “That is one of the issues on which I based my decision to switch [to Wellington West],” says an advisor in Ontario. “I will be able to transition when I am ready to retire and not be told that I don’t own the assets.”
National Bank Financial Ltd. received an overall score of 8.4 for its succession plan. It offers financial support for the transition of assets in a number of scenarios, including when a junior advisor wants to purchase all or part of a book.
“We need to bring the next generation in, and we have to create the financial structure to encourage them,” says Gordon Gibson, Montreal-based National Bank Financial’s senior vice president and managing director. “If we provide the proper programs and put the valuations right, there might be a lot less temptation for an advisor to jump ship and go to another firm for a signing bonus before he retires.”
Despite the detailed plan, advisors looking to buy a book are concerned about the quality of the assets they are purchasing. Says an National Bank Financial broker in Ontario: “People in the industry work until they are 100 years old. It’s hard to find a book to buy because by the time advisors retire, all their clients are dead.”
Toronto-based CIBC Wood Gundy is taking a long-term view in building relationships between senior and junior advisors, creating partnerships to ensure that assets are transitioned smoothly when an advisor retires. The firm helps in valuing the assets in the book and ensures that the departing broker is compensated accordingly. Wood Gundy is actively involved in finding a buyer for the book of business to ensure that assets stay in-house.
The firm is looking for someone who is “properly trained, properly funded and well supported,” says Tom Monahan, head of Wood Gundy.
Although 100% of Wood Gundy advisors surveyed were aware of its succession planning policy, pricing issues have some of them worried. “The firm doesn’t pay enough for a book,” says an East Coast advisor. “We essentially steal each other’s assets. It’s not a fair price.”
Blackmont Capital Inc. recently tackled the issue of aging advisors by introducing a retirement plan called Pro Plan, in which the Toronto-based firm acts as a middleman to ensure that the retiring advisor is properly compensated for the sale of his or her book. But Blackmont does not finance the buyer.
Although 85% of Blackmont advisors surveyed knew the plan existed, they rated its performance a middle-of-the-road 7.3. But the plan is winning over at least some Blackmont advisors. “It’s broker-oriented. The succession plan is the firm’s strongest attribute,” says an advisor on the East Coast.
Blackmont’s executive vice president and head of wealth management, Bruce Kagan, says five advisors have already expressed interest in the plan, and he expects 2%-3% of the current advisor base to use the plan annually. “It helps avoid significant legal time and cost for our advisors, and we will make sure the money is paid by the purchaser to the seller as agreed. We co-ordinate all of that,” he says.
@page_break@With the oldest advisors in the Brokerage Report Card, Toronto-based Raymond James Ltd. ‘s transition plan enables its retiring advisors — or “senators,” as they are respectfully called — to sell their books to other advisors within the firm. Raymond James underwrites the process, paying the seller directly and allowing the buyer a period of time to pay off the purchase price, thus ensuring the payment is received and clients are looked after.
Although Raymond James would like to keep the assets in-house, should its advisors choose to sell their books to advisors from other firms, its advisor contract states that the firm will have no contact with the clients in the exiting advisor’s book for a period of 60 days. After that, the firm is free to contact the clients. Raymond James advisors rated the program at 7.9.
ScotiaMcLeod Inc. has implemented a succession plan as a direct result of its advisory board recommendations, which were based on an internal survey. The policy states that the branch managers will be involved in valuing the assets in the book and finding a suitable replacement for the advisor, although the advisor has some input.
“The succession plan gives advisors a clear idea of what to expect when they want to retire, and it gives them a clear idea of what assets are worth when they retire,” says Hamish Angus, head of ScotiaMcLeod in Toronto. “More important, it gives an acquiring advisor an idea of what he or she has to go through [when buying a book].”
Although the firm has been successful in informing advisors of the plan — about 95% of those surveyed were aware of it — its 7.1 score for performance was less impressive.
The succession plan at Edward Jones‘ Mississauga, Ont.-based Canadian division is all about partnerships. The plan spans a three-year period, during which time the retiring broker transitions his or her book to an Edward Jones rookie; commissions are split between both advisors until the transition is complete, at which time the departing advisor acts as a consultant to the new advisor (in exchange for a fee equal to 15% of net commissions in Year 4). The plan is intended to keep assets in the firm.
“Our brokers are employees of Edward Jones, so the business is Edward Jones’ business, but [advisors] work in partnership with the firm to serve those clients,” says Gary Reamey, principal and head of the Canadian division. Advisors who want to transition only a portion of their business to another advisor can participate in the firm’s 18-month “Good Knight Plan,” in which assets are gradually passed on to another advisor.
Despite these detailed plans, however, a whopping 89% of Edward Jones advisors say the firm does not have a program to help advisors buy or sell a book of business. This may be explained by the wording favoured by the company. Technically speaking, books are not “bought” or “sold” at Edwards Jones; they are “transitioned” from one broker to another.
And rather than focusing on selling their books, Edward Jones brokers are more focused on the limited partnership offering, which can add up to hundreds of thousands of dollars by the time advisors in good standing retire.
Says one satisfied Edward Jones advisor in Ontario: “It’s in black and white; you do a good job, and you get paid for it.” IE