While it may look like the perfect solution, there are still things an advisor needs to think about before taking over a book of business.
The opportunity to take over a book of business is something sought after by virtually every advisor, and most would assume that every such opportunity should be pursued vigilantly. But are there times when advisors should walk away, as tempting as it may be on the surface to add assets—whether they are acquired, inherited from a senior partner, or as a result of strategic alliances.
As an increasing number of advisors are approaching retirement and with a shortage of next gen talent, there will be more of these potential opportunities to evaluate. With this in mind, here are 6 points you need to consider before signing on the dotted line.
- How real is the succession opportunity? Is this a vague promise that someday you can take over the business or is this a guarantee that you have in writing? How certain is the timeline? Decide how long you are willing to wait for a potential opportunity to materialize before you move on.
- Read and understand the contract, and have it reviewed by an attorney. Most firms have a defined sunset plan and advisors must enter into formal agreements to participate. How long are you obligated to remain with the firm before you are a free agent (and don’t assume it’s when your payments to the retiring advisor end)? Understand the repayment terms, penalty provisions and impact on your ability to rely on the Broker’s Protocol should you want to leave. Make sure that any agreements include an accurate carve out for your existing book of business so that they are not subject to the succession plan provisions. Alternatively, an advisor may consider putting in place a “side agreement” with another advisor or team. Be certain that your firm permits this type of arrangement.
- Can you create a customized or unofficial “handshake” agreement? This is especially relevant to family teams for whom the rigors of the standard model aren’t necessary and may not make sense financially or emotionally. Make sure that you’re comfortable with any additional uncertainty or risk created by not participating in a firm-sponsored program.
- Evaluate the book. Consider whether it’s a business that is worth your time and effort to transition. What is the likelihood of retaining the assets? Do you have capacity in your current practice to take on the additional responsibilities? Are these new client relationships a good fit for your current business model and/or do they help take the business in a sought after direction?
- Once you understand the obligations the succession plan creates (financial and otherwise), reassess your confidence in your firm. Can you positively conclude that your firm is the best – and right – legacy for you, your clients and your business? If so, then entering into a succession agreement can be a great strategy. But, if you are uncertain as to whether you want to commit to your firm for the long haul, don’t do anything to further tie you down. As attractive as it is to grow in this inorganic way, it’s only a good solution if you also believe that staying in your seat serves you best in the long-term.
- Consider comparing the opportunity in front of you with what’s available elsewhere. Advisors who are open to options outside of their own firm may exponentially increase the possibility of finding the right succession opportunity. Maybe there’s a succession opportunity elsewhere. Consider whether a different platform or model would allow you to grow faster, even without the benefit of inheriting assets. Advisors who are truly entrepreneurial-minded may be better served by looking at independent options that can open a world of possibilities to both buy other practices and to sell a business if they should choose in the future.
It can be a gift to take over a book, and we have seen numerous examples over the years where advisors, as a result, meaningfully accelerated their growth while providing continuity for a retiring advisor’s clients. However, like any opportunity as big as this, you need to make sure you know when the right decision is to simply walk away. Having a clear picture of your own goals and the opportunities that are available at your current firm, as well as elsewhere, will help you to determine the right path to achieve the growth you desire.