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Retirement Options For a Financial Advisor


By Rick Rummage, President, The Rummage Group


Bob is a 65-year-old advisor at Random Financial. He has worked hard to build a $150 million book throwing off $1.5 million in revenue. Over the last 37 years, he has seen a lot of economic ups and downs. There have been good times, and some bad ones too. In fact, a few times he thought he would have to exit the business.

Bob knows, all too well, that being a financial advisor is not for the faint of heart. There are risks that his salaried banker friends just don't share. First, it means working on 100% commission. Secondly, you are an employee at will (usually) and can be fired at any time for just about any reason. Third, you have a tremendous amount of compliance and potential litigation risk. An advisor can also lose his or her licenses at any time for various reasons. In times of trouble, most firms will be happy to let the advisor take the fall to save themselves. Firms sometimes settle bogus legal cases in order not to risk a potential large financial loss. This sometimes means the advisor gets barred from the industry, or at the least fired and severely scarred on their public FINRA record. Finally, there are economic and market risks.

So, with all these risks associated with building a book, what is the reward for Bob at retirement? Nothing. After painstakingly building a million-dollar book, Bob just hands it over and the firm gives it to another advisor. The vast majority of firms don’t even have a sunset agreement or the one they have is terrible. They certainly won’t give an advisor two to three times revenue when they retire. Why is this the case? It’s simple: The firm feels they own the clients, and the advisor’s success is solely because of them and the brand they have built.

This being the case, what can Bob do to reap some of the rewards? What if Bob still wants to work, but on a part-time basis? What if Bob would like to reduce his hours significantly and still have $100,000 to $300,000 in income for the next 10 to 20 years. The only real option is to not retire, but instead leave and go to an RIA/Independent, a hybrid or a high-payout firm with book ownership and flexibility.

Here at my firm, The Rummage Group, we consult with advisors every day who are in Bob's situation. They usually tell us they are going to retire in two to five years. When we ask them about their books, they just don’t know any other options but to hand the book back or take a weak Sunset Agreement.

Many firms don’t have sunset agreements and they certainly will not buy books back, but this does not mean advisors don’t have semi-retirement options. As long as advisors work hard to build strong relationships with their clients, they have hundreds of options. Most clients are loyal to their advisors, considering the advice is honest and financially sound, and there is a good relationship.

When given a choice, most advisors would rather slowly reduce the hours they work in retirement, rather than just stopping cold turkey. Below are a few examples of what an advisor can do to benefit from what they have built.

● Go Light. Go independent and work from home. Many independent firms will let an advisor work from a home office. Transition over your best clients and keep the assets in fee-based products. This will reduce the work load with each client and therefore a sales assistant is not necessary. Your book will be lean and efficient and take just 10 to 20 hours each week, with no one to manage. If done correctly, you will have a high-income stream for many years to come without having to work a lot.

● Go Big. Go independent with the idea of really retiring in in five to 10 years. Find a nice office, hire an assistant and spend the next several years building as much revenue as possible. Hire a smart CFP advisor as a junior partner. Increase the partners' share in the practice every year until they eventually own the whole thing – maybe when you turn 80. There are many ways to structure this kind of arrangement. At The Rummage Group, we have helped structure these dozens of ways.

● Build to Sell. Transition as much of your book as possible to an independent firm and spend the next few years growing. Most books of fee-based businesses are worth two to three times revenue. You will have dozens of large offers from other independent advisors the day you decide to sell. We get many calls each week from advisors looking to buy books.

● Keep it Simple. Some advisors stress about going out on their own. For these advisors, there are many options in every market. With all the boutique firms, plug and plays and RIAs that exist, the options can seem endless. A typical arrangement is for an advisor to own their books, receive payouts of 50% to 60% with no reductions or haircuts, work whatever hours you want. And if you decide to sell your book one day, they will buy it from you.

These are just a few examples of what’s available to advisors. I have used broad brushstrokes to explain, but each example can get detailed and customized. The key thing for an advisor to understand is hundreds of options exist. You don’t have to just turn in the keys and let the firm keep all the benefits of the vehicle you have built.

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