How Mature RIAs Can Get The Best Payout On Their Book Of Business
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Todd Sixt is the CEO of Strait & Sound. He is a successful and seasoned leader of financial service teams.

The registered investment advisor (RIA) industry offers big rewards and big challenges. One of the biggest challenges comes from industry exit. This is a life-changing event that most RIAs are ill-equipped to handle on their own. Here’s the problem. Many of these advisors spend their entire careers helping other people manage their money and make big decisions.

But when it comes time to make one of the single biggest financial decisions they’ll ever make, will they be ready?

There are so many factors to consider, and you’ve probably never encountered them before. You are an expert in the markets, financial planning, saving and investing. You get good at these disciplines because you’re formally trained in them and you solve so many of the same problems over and over again.

But exiting the RIA industry is something most will only ever do once.

No matter what lies ahead for you—retirement, world travel, a life of volunteering or even starting a new business—getting the best payout on your book of business is a crucial first step. Over the last several years, I’ve been privileged to coach numerous RIAs fording these waters. I’d like to share with you some ideas that have really helped them.

Here are the top five considerations I recommend you think about:

1. What is my practice really worth and how can I know this?

Several of the RIAs I’ve coached have experienced an unhappy moment. They think their practice is worth X, but when they begin to negotiate their exit, they find out it’s only worth Y. My advice on this point is simple. Get an independent valuation from someone who specializes in this area. The sooner you know this the better. There are several steps you can take to make your practice more valuable and attractive before it’s time to exit. But the most important thing is that you don’t delude yourself. If your payout is far less than you anticipate, this could severely limit your future.

2. Do I exit all at once or gradually, over time?

“Sell and stay” has become quite popular. In this model, RIAs gradually phase out day-to-day responsibilities as clients are transferred to another advisor. For instance, an RIA may be on a 10-year-plan where they work full time for the first three years and then gradually ease their way out over the last seven years. The tax implications of this approach are very attractive compared to a lump-sum payout that comes with a big tax bill.

3. How much planning does this really require?

In my experience, most RIAs underestimate this. Exiting is not a switch you throw one day and voila—you’re out. It’s far more of a process. I recommend that you do some research to understand the steps you need to take.

4. What will I do with my time on my way out?

This is especially important for those who plan to sell and stay. It’s pretty clear what your daily responsibilities look like when you’re building a practice and serving clients. But those responsibilities change quite considerably when you’re transitioning clients to other advisors.

5. Who serves my clients after I’m no longer serving them and how does this impact my wealth?

Many sell and stay agreements are structured based on assumptions of client retention. If only 50% of your clients stay with a new advisor after you transfer them, your compensation could be reduced by 50%. This means that who you pick to serve your clients after you exit could have a huge bearing on your payout. So choose wisely and coach the new advisor in the strategies that have allowed you to retain your clients.

How To Prepare For This Big Transition

Given the top five considerations above, I’d like to present five guiding principles to help you navigate them.

1. Don’t assume that your current employer will assist you.

Many RIAs work for small independent firms that are focused on serving clients, not helping their employees exit. If your current employer doesn’t have a structured process for helping you, it’s possible you’ll be on your own.

2. Don’t assume that the current options you know about will work for you.

One of the biggest mistakes I see RIAs make is choosing among limited options. I’m sure you’re familiar with buyer’s remorse. A portion of people looking at luxury automobile ads and postings are those who’ve already bought one. Why? Because they want to know if they got the best possible deal. That’s not the way you want to spend time once you’ve exited the industry. You want to know for absolute certain that you got the best deal for you and your loved ones.

3. Get clarity about your answers to the five considerations I’ve raised above.

You need facts, not assumptions. One of the biggest decisions has to do with lump-sum payouts or sell and stay arrangements. I recommend that you model out both options so you can see, in black and white, which option produces the best payout for your family.

4. Do the research to understand options that are available to you.

It’s so much easier to do research today than when I entered the industry. Many mature RIAs operate within trusted networks of people they’ve known for many years. Asking these people about options is certainly advisable. But I also think it’s advisable to go outside of those networks. The best option for your situation might be the one you discover from a Google search.

5. Work with a team that will help you achieve your goals and give you the support you need.

There are organizations that specialize in this type of situation, and they often bring resources to the table that can be very helpful.

Getting the best payout on your book of business will put you in the best position for what comes next in life. The ideas I’ve shared here could really help you achieve that.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?

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