In the world of advisors, nothing better defines you than your book of business. Your AUM, production, asset growth, and percentage of fee-based business provide metrics by which your performance and value are measured. Yet for many advisors—particularly those in the bank channel—the book is treated with near irreverence as it’s parceled out to other reps upon your retirement from the business.
“It’s sad how books of business get passed,” said Rick Rummage, founder and CEO of the career consulting firm The Rummage Group, reflecting on all the missed business opportunity.
With more than one-third of advisors over the age of 55, hundreds of thousands of books will be “passed” in the next 10 years. But they needn’t be passed so casually. With a little planning, you can walk away with more than just a handshake for the book of business you’ve worked so hard to build.
As I mentioned in my last post, best practice banks and brokerage firms are taking the transitioning of business to a new generation of advisors very seriously. In addition to pairing senior advisors with junior ones, they’re putting in place sun-setting programs to reward retiring advisors for their books of business, according to Boston-based research firm Aite Group.
Whether or not you work for a best practice firm, it pays to manage your book to maximize its value, says Todd Colbeck, president of Colbeck Coaching Group. The first step in that process is to make sure that you are increasing your recurring revenue, which is given more weight in book valuations. You should also cull your book annually and “keep moving high-value clients higher and higher,” he says. In other words, it’s better to manage $40 million in AUM for 150 clients than for 1,000 clients. “Eighty percent of revenues come from 20 percent of clients,” Colbeck often reminds advisors.
Another tip, he says, is to find out what the bank is going to reward you for. For example, the bank might reward you for achieving client retention goals or high client loyalty scores. If that’s the case, be sure to keep track of your customer retention and loyalty scores. It might land you a bonus and longer-term will boost the value of your book.
It’s not all about financial capital, though. In managing your book of business, don’t forget the value of your intellectual capital, something Colbeck defines as “what you and your staff know that your clients either don’t know or don’t have time to implement.” This includes the systems and processes you have in place to service clients, everything from appointment to proprietary sales and marketing systems. Advisors should document all systems and processes in “some kind of manual,” so as to capture the value of the intellectual capital invested in the business, says Colbeck.
One of the most important steps in monetizing your book of business is choosing a successor. Having someone in place to take over your accounts helps ensure a smooth transition and increases the likelihood that the business will stay at the bank, important when negotiating a possible payout with your employer.
Colbeck urges advisors to choose their successors two to three years in advance. This gives advisors sufficient time to groom their successors and more importantly allows the new advisors and clients to become acquainted.
If your bank is of the old school “here’s a handshake” variety and doesn’t compensate retiring advisors, you might be wondering what’s the point of all this trouble. Simply this: It makes sense to manage your book as efficiently as possible, regardless of whether there’s a reward at the finish line. Besides, you never know what might happen by the time you retire. Your bank might change its mind and bring it policies up to best practice standards. It’s best to be ready.