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IFAs: Making a Staged Exit

When the time comes to retire, what are the options for IFAs? Neil Martin kicks off a new series with Ian McIver from Nexus IFA

What does the ideal retiree look like? According to Ian McIver, Development Director at Somerset-based Nexus IFA Ltd, he’s an IFA who’ll be happy to receive regular income from his client portfolio for up to ten years and who’ll stay around to help a smooth client transition.

A Better Way

McIver says that many IFAs who sell their client recurring income stream are simply told to hand over their portfolio to the buying firm, take whatever cash is offered, and then never darken the doorstep again. But the Nexus way is different, he says. Retired IFAs are given the title of Advocate, which means that they still get to communicate with their clients, but that they no longer provide advice.

McIver reckons that a walk-away cash deal is the worst one that most IFAs can do. Nexus says it gets IFAs who come to them with a portfolio with say a £100,000 of trail and recurring income, and who claim that they’ve been offered only £300,000 for the lot.

The Incredible Shrinking Payout Deal

“Let’s assume he does get the money all in one go,” McIver says. “What’s he going to do with £300,000? It’s a lot of money, and he’ll invest it to get some income off it. So he can buy a pension with £300,000 cash, and at best it will probably buy him a pension of about £15,000 a year. Well, currently he’s earning a hundred thousand, so his wife is going to be pretty annoyed when he tells her that he’s £85,000 down.”

But, according to McIver, it’s rarely as simple as saying ‘here’s a cheque for £300,000’. What usually happens in practice is a promise of £100,000 every year for three years, except that the clients might scatter at the first sign of change, and then the value of the portfolio changes. That in turn means that the second and third payments become suspect.

So the hoped-for £300,000 can quickly become £100,000 in the first year, a lot less in the second and very little in the third year. McIver thinks there’s another way.

“What he should do is say to his buyer, ‘can you take on the clients, but pay me an ongoing regular income from that? Okay, it’s not going to be all of it, I accept that, but more importantly, I can also obtain some continuity with the clients.’”

“And this is what we do. The Nexus approach is to pay the IFA between 60% and 70% of what he or she would get for a straight cash deal. And this can last for up to ten years. That’s 60% to 70% per year. In return, the IFA helps maintain the client relationships, and rather than the promised £300,000, they could potentially get 10 x £70,000, so a total of £700,000. And, if the IFA dies within the ten years, then his wife will continue to get the payments.

Smoothing the Transition

“This is achievable because the IFA, now an Advocate, is helping to smooth the transition from his portfolio to ours, so that the client attrition rate will be far less over the years – meaning in turn that more of the income can be saved.”

McIver makes the point that most people they meet don’t want to just run away. They would like some continued involvement, although there is a limit to how far that goes.

“They won’t want to be involved for ever, so we say if they do it for a year, or 18 months, then that’s probably sufficient because it binds the client in and lets them know that their advisor is now Nexus. So, after about 18 months, they can nip out of the door and have less involvement.”


Key Features of the Nexus Proposal
  • Rather than an outright cash sale, Nexus IFA pays the majority of any recurring income to the Advocate
  • The Nexus Advocate also shares in new business earnings which then feeds and increases future recurring income
  • Advocates have the time to maintain client relationships – the part they do best
  • No further paperwork, no need for authorisation and no further payment of regulatory fees
  • Quote: “Nexus has a lot of FUN. Nexus has a small and friendly business approach which many retiring IFAs and their clients will find more comfortable than the ‘big corporate’ approach”

 De-Authorising

The real issue behind all of this, believes McIver, is the way that advisers decide to define their retirement. They are not obliged to retire at any given age, and many don’t want to give up. What they effectively want to do is de-authorise, because they don’t want all the hassles with the regulatory environment and administration. And on the flipside, many of their clients are friends, so they don’t want to just walk out on them.

McIver also warns retiring IFAs that, should they de-authorise, but expect recurring income from the portfolio, it’s unlikely that they will continue to be paid out by providers. In fact, they would immediately classify them as former advisers, and no longer qualifying for payments.

Innexus IFA logo short, says McIver, the Nexus approach gives an IFA a percentage of the ongoing income, for a maximum of ten years, and allows them to stay around, but not have to face all the regulatory demands that goes with the job. They also receive a percentage of any new business gained with their client, which is again recurring.

McIver says the real irony is that, of the 23 retirees who have joined Nexus as Advocates, all of them are now earning more than when they were sole traders…


For further information, or for a confidential introduction, please email us at hr@ifamagazine.com, or call our publishing director on 07974 708771


How IFAs Can Build The Value Of Their Businesses

A unique event which looks at how IFAs can unlock the secrets of building their business is being held in London at the beginning of July.

Gunner and Co, the prominent IFA broker, has teamed up with IFA Magazine, Mountain Consulting and Equifax to hold a unique, one-off event which, say the organisers, will give IFAs a rare insight into finding the true value of their business and what steps they can take to build value.

Alex Sullivan, Managing Partner, Gunner & Co, said: “The event should not only be informative, but also have an element of excitement. We have built the event on a speed-dating format which means that everyone attending can get real value from the advisers and experts who will be there.”

The event will cover topics such as planning for the Sunset Clause, understanding valuation methodologies and what best suits your business. The organisers say that this is a practical event packed with actionable knowledge.

Held at the prestigious The London Capital Club (15 Abchurch Lane, London) on 9th July, 2015 at 5pm, the event is free (and includes drinks and canapés) to qualifying IFAs, but is on a first-come, first-served basis and places are limited, so click here to register.

or, by email info@gunnerandco.com

Click here for full programmes.

 

 

 

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