How One Financial Adviser Resolved the Thorny Issue of Succession
For more than three decades, Paul Pignone of Boston Retirement Advisors LLC has helped clients prepare for later life. But the 67-year-old dragged his feet and struggled for years with his own retirement-planning challenge—finding a way to cash out of the business he built while maintaining high-quality service to his clients.
About six years ago, clients of Mr. Pignone’s Salem, N.H.-based firm started asking if he had a plan for his practice in case he died or became disabled, he says. The answer was no. It hadn’t been a priority for the avid tennis player and four-time marathoner, who felt younger than his age.
But even when he then focused on making a plan, initial discussions with other advisers didn’t go far.
“Many of my clients have been with me for decades and I would feel guilty if I picked an adviser that I knew wouldn’t be the best for them,” says Mr. Pignone, who manages roughly $80 million for 220 clients. Besides, “I was so busy taking care of my clients,” which left little time for succession planning and negotiations, he says.
Succession is an issue for advisers and their clients nationwide at a time when the average age of registered investment advisers is estimated to be in the mid 50s, according to Boston consulting firm Aite Group. Many independent advisers are the sole professionals in their small firms and about 62% of those advisers don’t have a succession plan, according to Aite Group research.
Privately held financial-advisory firms generally don’t have a specific legal requirement to do succession planning, although for many that could be considered part of their duty to act in clients’ best interests, says Brian Hamburger, an Englewood, N.J., lawyer and consultant to advisers. Last year, an association of state securities regulators adopted a model state law that would require many advisers to have a written plan that includes the assignment of duties “in the event of the death or unavailability of key personnel.”
Brokerages that offer account custody and other services to independent advisers often discuss the importance of succession planning and not surprisingly, as they’d like the assets to stay in their networks. Meanwhile, national firms such as Focus Financial Partners LLC and HighTower Advisors are looking to grow their assets and client lists partly by making deals with independent advisers who are looking to transition to retirement.
In Mr. Pignone’s case, the questions from his clients prompted him to reach out to other local advisers who similarly charge only fees and not commissions. At the very least, he thought, he and another adviser might reach an agreement to take care of each other’s clients in a pinch. But nothing came of those initial talks and the issue slipped lower on his to-do list.
About two years ago, at age 65, Mr. Pignone asked Fidelity Investments, the brokerage that holds his clients’ assets, for help. He says Fidelity gave him names of about 12 other advisers working with the brokerage as possibly being interested in buying into his firm or combining. He narrowed the list to six candidates, and over the course of about six months, invited each to his office.
He ruled out one candidate on that short list because of a difference in investment philosophy. That man, he said, wanted to put almost all of his clients’ assets into a handful of low-cost exchange-traded funds. Mr. Pignone, who typically uses a mix of holdings that also includes mutual funds and individual securities, saw that as a generally “lazy way for a professional to manage money.”
Another young adviser wanted more compensation than Mr. Pignone thought reasonable given that he was managing only $10 million in client assets. “I come from the old school. You have to show me some sweat equity before you tell me everything you think you deserve,” the older adviser says.
When Mr. Pignone had narrowed the field to two finalists, he met each of them over a dozen times at his office and theirs. He shared some of his practice’s financial information. He told them about his Italian Roman Catholic upbringing and how that formed his sense of duty to his clients. Eventually, Mr. Pignone settled on an adviser in his 30s, but the two couldn’t agree on terms.
The answer to Mr. Pignone’s predicament arrived by email. He received a message from two advisers in their late 30s who were interested in discussing purchasing his practice and becoming partners.
Benjamin Beck and James Bode both previously had worked at Merrill Lynch in Boston. Operating as Beck Bode Wealth Management in Dedham, Mass., they were committed to a fee-only model like Mr. Pignone and shared a similar investment philosophy.
After more than a dozen in-person meetings, Mr. Pignone felt the men would work well with his clients. He was impressed with their desire to not only help take care of his clients but also to build the business. He asked them to make an offer and found it to be reasonable.
The two young advisers will invest their own money in the practice, Mr. Pignone says, and they agreed to have him keep 50% ownership for the next two years. His stake will then gradually decline over an expected 10 years as he remains an active partner.
In January, the three advisers formally started their partnership, in which the two younger advisers serve as managing partners of Boston Retirement Advisors but also continue to run their own firm.
“The search is finally over. I’m so relieved,” says Mr. Pignone.
Write to Veronica Dagher at email@example.com