Retiring is a big step. Clients have become friends, and you don't want to leave them in the lurch. If you're an independent rep, you can select a suitable buyer for your business and orchestrate your exit so it's gradual. Or you can choose to stay on until you can't.

Meet two brokers in the midst of transitioning their businesses to a successor they picked personally.

Creating a Contingency Plan

Mat Summers, a broker with Linsco/Private Ledger in San Diego, is entrusting Mark Kohn to serve his clients. He brought on Kohn as a back-up strategy in case he needs to retire because of health reasons.

Previously, Kohn and Summers worked under the same branch manager. But in March 2000, the two reps went off together, and Summers became the branch manager.

I was looking for somebody with the same broker/dealer and the same philosophy, says Summers, 61. I have introduced him to a number of clients. They feel comfortable with him. The two share an investment strategy focused on managed accounts and rooted in modern portfolio theory.

A 30-year financial industry veteran, Summers is still in the process of acquainting Kohn with 400 clients. The goal is to finish it off this year, he says. Things I've done in the past, I'm having him do.

In broaching the issue during quarterly reviews with clients, Summers says: I've taken on an associate. I don't plan to totally retire until I'm forced to due to health.

Although Summers uses the title associate when referring to Kohn, Kohn is his equal. Both have their own production numbers and a joint number for new business. They have a buyout agreement that only goes into effect if Summers becomes disabled or dies.

But before he put this arrangement in place, Summers was uncomfortable thinking about what would happen with his clients if something happened to him. These are long-term associations, he says. I take it to heart.

Finding a suitable match was difficult. I attempted it before, but it didn't work, Summers says. In this situation, Mark is willing to give to get. He's very upfront. We have a good relationship. He's taken the position of the back room. A lot of people would want to dominate.

Eventually, the two plan to have Kohn become the manager so he can run the branch.

I would like to keep working with my clients, Summers says. It's a business built on relationships. There isn't a friend I have who's not a client. And clients become friends. You want to protect that, protect them.

Easing Clients Into Change

Ray McPharlin and his wife, Sharon, found his successor, Paul Giles, at a bagel shop in summer 1999. Well, not exactly.

McPharlin, 67, and Giles had worked in the same American Express office in Troy, Mich., but Giles left for another firm 2 years before. They ran into each other at the bagel shop and started talking.

I had been interviewing many people for six to eight months before I ran into Paul, says McPharlin, a 19-year veteran. I was not totally happy with my prospects. I called him a few days later and said I would like to set up a meeting.

Initially, Giles hadn't thought about going back to American Express. I left for better products and higher payout, he says. But Sharon and Ray shared the changes that had taken place at American Express. So he was open to the idea.

Certain qualities made Giles stand out from prior prospects. I liked his flexibility, McPharlin says. It's an important asset. Some people we interviewed were not flexible. One person wanted me gone the next day. That's not the best for the practice.

Giles reviewed detailed data on McPharlin's business, including rankings of client accounts, and made an offer. The two agreed on a sales price based on revenue, and Giles made a down payment. McPharlin is financing the balance in a four-year promissory note. A lawyer drew up the formal agreement.

The transition started in January 2000. Ray and I agreed it wouldn't be a complete separation, Giles says. It would be a smooth transition. Ray introduced his influential clients to me in the first year, and we started doing new business on a shared basis. Joint business in 2000 was split 50-50.

The pair discovered their planned transition timeframe of one year was too short. Last year was supposed to be my retirement year, McPharlin says. But it was a busy year of introducing clients to Paul and seeing new clients. This year, he's cut back to about three or four hours a day, finishing up business started last year.

The business is large: 650 clients with more than $100 million in assets under management. About 80% of clients are from one large employer and 90% of the money is retirement rollovers, Giles says. Many of them are blue-collar workers.

After initial client reaction, the brokers had to change their approach. We were running into shock on behalf of clients when we told them I was retiring, McPharlin explains. We had to tone that down to say I'll be around.

Clients needed some reassurance from McPharlin. They have questions and would like to know about Paul, he says.

Over time, clients have adjusted. Most of the clients are OK with me now, Giles says.

The bottom line during a transition: Focus on nurturing client relationships, McPharlin says. That's what we're trying to transfer over some degree of trust.

Registered Representative welcomes your comments on this story. Contact Editor in Chief Dan Jamieson at or call our editorial department at 800/621-0720.

Transition Solutions:

  • Find a successor with a similar philosophy and background.
  • Meet with clients in person to explain the new arrangement and ensure they are comfortable with it.
  • Continue working but make a transition agreement that is triggered if you become disabled or die.

Transition Solutions:

  • Start early and spend time finding the right person to take over.
  • Move slowly in introducing clients to your successor.
  • Emphasize your confidence in the successor to develop clients' trust.