Advisor Terry Colton, 63, has been practising retirement. “I firmly believe if you’re going to be good at something, you really need to practise it,” he jokes.

A keen sailor, Colton, owner of Worldwide Lifestyle Planners Ltd. in Coquitlam, B.C., spends several days a week on his 37-foot boat, sailing up and down the British Columbia coast. The rest of his time is dedicated to clients, advising them on lifestyle planning for retirement.

As with a growing number of advisors, Colton is easing into retirement. As members of the baby-boom generation, who are now entering their 60s, these advisors are finding “phased retirement” is an increasingly important option — especially if they need time to consider succession planning, find a business successor and arrange a smooth transfer of clients to the new advisor.

Phased retirement also appeals to the first wave of boomers because they still have lots of energy. They want to stay involved in their businesses but also have time to pursue their passions.

But advisors thinking of phasing gradually into retirement need to prepare both themselves and their businesses — and that can take three to five years, says Sandra Foster, president of Toronto-based Headspring Consulting Inc. , which provides advice and expertise to the financial services industry.

Foster’s book, Buying and Selling a Book of Business: What every financial advisor and planner should know, which was first published in 2001, offers guidance on buying and selling an advisory practice and is aimed at helping advisors value a business and understand the critical success factors in doing so. The fifth edition of her estate planning book, You Can’t Take It With You, came out this year.

“The further in advance you can plan, the more likely [succession] is to be successful,” she says, “especially if you’re bringing on a partner.”

As you get older, says Foster, you have to start thinking about what retirement means to you. Asking yourself if you can afford to retire is part of the process. While some advisors may want to go on working indefinitely, she says, “I’m not sure some clients will be comfortable dealing with 80-year-old advisors.”

Wayne Taylor, national president of the Retirement Planning Association of Canada and head of Edmonton-based Taylor Financial Group Ltd. , started his phased retirement about five years ago, when he decreased his time in the office from six days a week to three. Now, he spends most of the week at his farm in nearby Smoky Lake.

“I’m walking the talk,” he says.

Succession planning is crucial for anyone thinking of a phased retirement. Since Taylor entered the business 37 years ago, it was his objective to build a practice at which he would have to work only three or four days a week. And he planned for it.

“Now, I see some colleagues who have been around as long as I have and some are not happy,” he says. “I wonder how they’re managing their practices.”

Foster maintains that the ideal approach is to set a target for retirement and to work toward it. You also will need to incorporate input from a spouse or partner into your plan. As well, she adds, the process should involve training your existing staff to take over or hiring a junior advisor who will take over as you phase out. Finding someone who has the same operating style as you do is important, she emphasizes.

Colton agrees. He started planning for his phased retirement about five years ago and has downsized his involvement in his business over the past two or three years. He sold part of his financial planning practice about three years ago, retaining some clients for himself. Colton interviewed three people as possible purchasers for his business and decided to go with someone with similar values and attitudes to his own, in terms of dealing with clients. “That was important,” he says.

Maintaining that personality match and the relationship between the advisor and the client, he adds, was key to a smooth transfer of clients to the new business owner.

For his part, Taylor found an advisor who is 20 years younger than himself to succeed him when he fully retires. But it took a long time to find the right person. “It doesn’t come overnight,” he says.

@page_break@Adds Foster: “While you’ll never find someone to take over your business who is a clone of yourself, you should look for someone who will provide business continuity.”

Financial advisor Lucette Simpson, 60, and her husband, Nick, 63, principals in Lanagan Lifestyles Ltd. in Calgary, started thinking about phased retirement four years ago. Simpson had been working on her own and had hoped to find another financial planner to join her firm to give her more time for herself. She had told her clients what she was planning to do. But after a couple of years of looking, unable to find anyone and tired of changes and takeovers in the fund dealer with which she was associated, she decided downsizing was the route to go.

She sold most of her business to another advisor, identifying the new advisor for clients and explaining her plans to them. Most clients transferred their accounts to the planner she recommended. Simpson retained a small number of the wealthiest clients — the number was whittled down to about 15 from 250 — and switched to working on a fee-only basis. She now focuses on lifestyle planning. Wealth management is handled by another firm, to which she refers her clients.

One way to ease out of the business, Foster suggests, is by working as a team with your designated successor. Introduce a team approach to dealing with clients to help smooth the transition, so by the time you are ready to leave, clients don’t see it as a major change.

“The worst thing you can do is take on a new client, make all sorts of promises and then retire a month later,” she warns. A gradual transition is better than trying to leave the business too quickly.

Taylor says that in his transition, communicating with clients has also been important: “I made sure clients could still see me if they wanted to and that they knew there would be someone here if I was not.”

“If clients don’t react favourably to a team approach,” Foster says, “that may mean you’ve picked the wrong person — or perhaps your junior advisor needs more training.”

In any event, meet with your clients and get their feedback on the new arrangements, she advises. You need to have positive answers to your clients’ questions. “Look after your clients,” she says. “Without them, you won’t have a business.”

And, of course, the best way to start is with a business that’s running smoothly before you retire, she notes.

If, like Simpson and Colton, you’re thinking of selling your business, you may need to make it attractive to a potential buyer. You’ll want it to be a good, clean book, Foster says: “Make sure your client files are up to date and you have quality trained staff in place.”

Also watch for investments that have the potential to be problematic. And pay attention to the amount of leverage you have in your business.

Colton met with his clients over a one-year period to review their portfolios with the new owner. “It was like introducing another friend into the circle,” he says. Gradually, Colton was able to withdraw.

Forming a team with the designated successor worked well for Taylor, too. He says his plans for a phased retirement were “fairly fluid” at first, without a precise starting date. But he began getting serious about two years before making his lifestyle change. He says he had to make sure he had the right team in place at the office. The team consists of three advisors, including himself, and two support staff.

He started looking for a farm to buy within an hour-and-a-half’s drive of Edmonton. It took two years to find the property but, Taylor says, it’s “an absolute paradise.”

“When I’m on the farm, I’m relaxing,” he says. “I’m still thinking about the business, but my mind is freed up to be more creative.”

He believes the lifestyle change has resulted in a positive psychological transformation. “People tell me I look refreshed and more relaxed,” he says.

Taylor offers his office team an arrangement similar to his own. One of the support staff works four days a week and the other will eventually reduce her workweek to four days, as well.

“It’s a very much an open style of management,” he says, and it works well: “I sense that for some of my colleagues who micro-manage and are controlling people, this is not an easy process.”

FINANCIAL ISSUES

Planning for your own retirement, or phasing out of the business gradually, requires some financial planning. It means looking at your own financial situation and setting out your annual income. It also means making sure you don’t overestimate the price you will receive for your book of business, upon which you may be depending to support yourself in your retirement, Foster says.

And, if you are phasing out gradually, you will need to have an agreement in writing that sets out how business income and expenses will be shared with your successor, she cautions.

The advisor who purchased most of Simpson’s business, for example, is paying Simpson over a four-year period, which gives her regular, quarterly income for the next four years. Simpson and her husband intend to create retirement planning seminars, which they will market next year.

“But we want to choose the months we will work, instead of working any time,” Simpson says.

As for how the couple will finance their phased retirement, Simpson says: “I’m a financial planner. We have been building our portfolios for quite a while.” She and her husband are financially independent, but, she admits, the income from the sale of her business helps a lot.

Simpson’s advice to others who are thinking of phased retirement: “Plan for it. Make sure you’re financially OK with it. Make sure your partner is onside with it. And, if you have staff, it’s only fair that you let them know what your plans are.”

Colton has never been worried about money. He and his wife have been saving for retirement through RRSPs, into which they haven’t yet tapped. His sailboat venture is self-financing, as Colton offers one-week sailing trips for three or four people at a time. Their fees provide enough money to cover Colton’s expenses and leave him with a bit of profit as well.

Colton says it was a workshop for widows given by his wife, who is a clinical psychologist, that triggered his interest in phased retirement.

“So many of them said they wished they’d been able to do the things they wanted to do while their husbands were still alive,” he says. That’s when the Coltons started talking about living their dreams.

LESS STRESS

Advisors who have tried phased retirement all seem to agree it has lowered their stress levels. Many believe cutting back on their working hours has also improved their health.

“My stress level has gone down drastically, because I’m no longer responsible for portfolio performance,” Simpson says. “Now, I have more time to exercise. I’m doing a lot of walking and I feel much fitter.”

Her husband, Nick, is enjoying the relaxed commitment his wife has to her business. “Changing careers has been regenerative,” he says.

Taylor admits he was “probably pushing it too hard” when he was working six days a week. And while he still has a heavy workload — he takes files with him to the farm — his schedule “takes the pressure off time in the office.”

When Taylor is at the farm, he works on files from 8 a.m. to 10 a.m. each day, then the rest of the time is his to spend as he wishes. “By 10 a.m., I’m out in the bush or riding the horses,” he says. “I was always working out in the gym before. Now, I don’t have to work out in the gym because I work out in the bush.”

But when Taylor is in the office, he works 10- to 12-hour days, often holding meetings until 7 p.m. “It’s sustainable if you’re doing it only three days a week,” he says.

And since he cut back to three days, productivity, earnings and income have increased. His advice: “Pace yourself.”

Be aware that you need to prepare yourself for changes in the social aspect of phased retirement, Foster says: “Advisors often work well with clients to prepare them for retirement, but advisors often don’t prepare themselves well for the physical and psychological impact of working fewer hours and leaving part of their identity behind.”

A good advisory business is based on its relationships with its clients and with other team members. Once you leave those relationships and social connections behind, you may lose some of the contacts that made you thrive and feel motivated.

Simpson, for one, admits she has more time on her hands than she is used to. “I need to add structure to my life,” she says, “It has been a shock to my system and I don’t feel productive. Retiring is great, but I’m not ready to have nothing to do.”

Next year, she plans to work two days a week. She also hopes to get involved with a charity or do other volunteer work.

Advisors agree that planning for a new lifestyle is a vital part of phasing into retirement. In his practice, Colton deals with people who have limited savings and people who have millions of dollars. “But, if they don’t have their lifestyle in order,” he says, “it doesn’t matter how much they have. Life is not going to be so good.”

To anyone who is thinking of a phased retirement, Colton’s advice is: “Do it! I’m a firm believer in setting goals and sharing them with other people, and moving down the path that you’ve chosen.” IE