Retiring broker on a four-year buyout

When Rich Warner decided to leave Edward Jones in 2008, he was feeling a little burned out by the stock market's gyrations. After spending almost 25 years as an Edward Jones broker located in the upper Michigan peninsula city of Escanaba, Mr. Warner was “getting a little weary with all the responsibility of the position,” he said. “It was taking its toll.” Now he is fully retired and does not have a hand in any other line of investment work, other than keeping an eye on his own portfolio, he said. “I'm fine with not doing anything in the business right now,” he said. “I'm pretty much done. I lost the desire to monitor the business for other people.” Like many brokers with Edward Jones, the 60-year-old Mr. Warner's first career choice was not to be a stock broker. “I started with Jones in 1984,” he said. “I was a former dean of students at a community college in Illinois and I knew some Jones brokers. I became unhappy with what I was doing, and I really didn't do a whole lot of homework” on the investment advice industry, he said. “I was relying on my friends and perhaps dumb luck, but what a wonderful decision.” He said he was pleased with the price he got for his business, but 2008 was not the most advantageous time to retire. “The cash flow was not what I wanted it to be,” Mr. Warner said. Jones has a very structured, four-year plan to buy out its advisers when they leave the firm. A veteran adviser selects somebody to come into the office and begins to transition the relationships. There's an agreement to split commissions over a one- to four-year period of time, based on a 40% payout to the adviser. The first year, the veteran and the recruit split the commissions and fees, respectively, 70% and 30%. In the second year, the ratio is 50%-50%, and in the third, it's 30%-70%. In the fourth and final year — the year Mr. Warner is in now — the retiree receives a 15% consulting fee.

LIMITED PARTNER

Mr. Warner, who remains a limited partner with Jones, had about 1,200 accounts and farmed them out to three separate branch offices in the area. Being one of the 15,000 limited partners at Jones is an additional bonus: If he dies, his wife gets the value of the partnership shares. Because he previously had helped incubate three other offices in Escanaba, he had to make a variety of succession plans and communicate with almost 1,200 clients. It took him about a year to get everything in order. Two weeks before sending a letter to each client, Mr. Warner in May 2008 made personal phone calls to 200 of his best. “It really worked smoothly,” he said. “We lost very few clients.” That doesn't mean it was without difficulty. “Some clients were upset because I was leaving, some were thrilled for me because I was retiring and could do other things,” Mr. Warner said. “Some were emotional.” “But before that, make sure you've made that decision” to leave the business, he said. “Someone starts a plan, and after getting a third of the way through it, he realizes it was a mistake.” Stopping those plans has the potential to be a small disaster, Mr. Warner said, “It's tough to extricate yourself,” he said. “You have to ask: "Is this what I really want?'” bkelly@investmentnews.com