At 51, Patrick Seal, a senior financial advisor at Elevations Credit Union in Boulder, Colo., is mulling options to monetize his book of business when he retires from the business.

“A few years ago, I went to the top management of the credit union and asked about devising some kind of succession plan,” says Seal, who had launched the institution’s investment program 11 years ago as Elevations CU’s first advisor and who helped build it into a 12-advisor shop. “They were not on board,” he recalls.

Then, four years ago, John Marx was hired as program manager and brought succession-planning experience with him. “He said it was a great idea for financial institutions to draw up what he called retention documents.” Otherwise, Marx explained to Seal,  advisors would just try to take as many clients as they could and it would be a tough situation for all involved.

Seal realized with Marx on the scene, it would be worth reapproaching management about a succession plan. So with Marx supporting him, he tried again.

Mary Ann Kammerer, chief of advisory services at Elevations, says, “Patrick was our top advisor, with a

$40 million book, and we knew he wanted a plan for leaving, so we contacted CFS. Peter Vonk, executive vice president for business services and chief compliance officer at CFS, said they had started a revenue-sharing succession program in 2014, and he sent us a copy of their plan.”  She adds, “We took a look at it, made some suggestions and then talked about it with HR and with Patrick, and we all came to an agreement that worked for all parties concerned.”

PHASED TRANSFER

The plan that Seal worked out with Elevations is now a fairly straightforward process. Any advisor with a minimum of 10 years with the credit union’s investment program, who has generated a certain level of recurring fees over a three-year period, and who gives 180 days’ notice of plans to leave is eligible for a succession plan.

Under the terms of the six-page plan, advisors who leave get to choose their replacement (with the credit union’s agreement). Then a three-year phased transfer of clients is negotiated, with fees shared on a sliding scale. “It could be that the advisor leaving gets 75% percent of fees on existing clients for the first year and the new advisor 25%, then 50% each in the second year, and then 25% and 75% in the third and last year,” he explains. “Or you could negotiate something different. It’s all revenue neutral for the credit union, so management doesn’t care how it’s worked out between the retiring and the new advisor.”

Of Elevations CU’s succession process and those at other “forward-thinking” institutions, Marx says, “This is an idea that has been percolating for a few years. But as you have more and more fee-based business in the bank channel, with wealthier clients, the banks have to deal with the question of what happens when senior advisors leave.”

CFS’s Vonk agrees. “This issue of designing some kind of succession planning came up because we had some reps retiring four to five years ago and there were some uncomfortable situations that developed. The plan we worked out has smoothed things over and we started thinking, ‘Hey, let’s get ahead of this.’”

At this point, while Seal knows there’s a way for him to leave and get paid smoothly, he’s not planning on it just yet. “My plan is to keep at it, and then after a few more years, maybe I’ll start working fewer hours, or maybe not come into the office every day. Maybe I’ll dial in from the Caribbean sometimes,” he muses. “Then I’ll get to full execution of the switch to a replacement advisor and I’ll just hand it over. My program manager says, ‘If you can make it work, more power to you.’”

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