“I have a transition plan. I’m going to keep a few good clients and just slow down gradually.”
I hear this from advisers these days, people who are starting to think about retiring and intend to make a gradual transition to the slow lane. So, does this strategy work? While no generalizations are valid 100 percent of the time, our experience suggests that “just slowing down” often causes more problems than it solves. Here are a couple of real-life examples from clients we’ve worked with recently:
- Justin was 65 and after 25 years of running his own six-person fee & commission based financial advisory business in NYC, felt he was ready to spend six months a year in Florida. He sold his company to a local friendly competitor, stayed for three months during the turnover period and cut a deal to work as a rep for the new owner with 20 of his best clients. While he was not expected to bring in any new business, he was counting on the future revenue the 20 would generate.
What happened? As Justin spent more time on his boat in Florida, his “big 20” clients back in NYC soon felt the quality and intensity of his service fade away. Justin just didn’t seem to care about them as much as he had before, and it showed! Many of them soon turned to the new owner to complain, and he had to reassign them to another advisor. Justin had to re-think his retirement lifestyle.
- Sarah was 60 and her business transition plan was to let her sole practitioner, fee-only financial planning business slowly wind down by not taking on new clients. She would be comfortable financially to just “ride the revenue curve” down as her current client base slowly went away, died or moved to a nursing home. At some point she’d close the business, but that was years away.
What happened? Things worked fine for a while as Sarah found she could spend more time on her hobbies. But soon she found that a wasting asset—her business—quickly gets to the bone when costs stay relatively constant. Business software, outsourced services, travel to FPA and NAPFA meetings, all quickly withered way as she struggled to cut costs as revenues declined. She found she couldn’t maintain her professional standards “cooking on low heat,” so she finally transferred her remaining clients to a friend and got a small revenue override for a couple of years.
The moral of these stories is that you generally can’t have your cake and eat it too! Both Justin and Sarah hadn’t worked through their transition process. By holding on to what seemed to be a manageable piece of the past, they were avoiding dealing with the “letting go” phase. The problem didn’t get solved; it just got postponed!
Sam Hull, CFP®, CPCC, ACC, RLP
Whitewater Transitions LLC