Opportunitiesfor established advisors

September 5, 2018

Wirehouse Succession Programs

Should I sunset or sell? For a Wirehouse advisor the answer doesn’t appear to be so clear.

All the Wirehouses offer succession programs:

  • Wells Fargo Advisors - Financial Advisor Succession Program
  • Morgan Stanley - Former Financial Advisor Program
  • UBS - Transitioning Financial Advisor Program
  • Merrill Lynch - Client Transition Program

All these programs are very similar. Both legal and financial consequences for the retiring advisor and buyer are significant.

The main similarities are:

  • Only getting between 30-60% of the value their practice is worth.
  • Getting paid over 3-5 years (typical) instead of getting most of it upfront.
  • Being taxed at their regular income rate instead of capital gains rates

Given this insight, it is unlikely the average Wirehouse advisor would advise their own clients to take an internal sunset.

Insult to injury.

In addition to the above, Wirehouse’s are notorious for fine print and you should hire an experienced attorney. These aren’t acquisitions. Neither the selling broker nor the buying broker own the clients. The wires are very clear that they own the client. Non-solicit and non-compete agreements are above and beyond protocol. The buyer is essentially stuck, not owning the clients or the revenue stream and will likely never be able to leave with those accounts. As a buyer, why would you buy a revenue stream you could never monetize?

But many Wirehouse advisors have accepted these strict terms, why? Here are some of the reasons we’ve heard:

  • I don’t think enough clients will follow me.
  • The Wirehouse has been good to me. (Totally surprised to hear this after the financial crisis)
  • I’m not willing to go through the work of a move.
  • The deal looked great. (Another surprise since most deals are better if they move)

What alternatives do Wirehouse advisors Have? Many. It has never been a better time to shop around.

  • Valuation of 2.5-3x recurring revenues.
  • Structure the down payment and earn out as Capital Gains vs Regular Income
  • Flexibility in timeline; 12 months to years. Maybe you want to monetize your book but continue working with a select group or maybe you want to focus on a specific task.

Basically, retire on your own custom terms.

Where do you go?

Well, clearly you can jump to another wire or regional firm they also have programs set up for retiring advisors. The sale can be part of a recruiting deal and be lucrative.

Independent and Hybrid firms make a lot more sense if you want true flexibility. They have access to plenty of financing which makes them competitive but can also front load most of it. Independents have developed impressive platforms for high net worth clients and have become very accommodative. From SBL, Private Banking, and Investment Banking to alternatives and fixed income the differences between Wirehouse and independent platforms are now folklore.

As a former wholesaler and advisor to advisors I urge you to think about these programs and have external conversations. Call us, lets do the math, and look at the opportunities.

Happy retirement!

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