As a profession we haven’t cracked what happens at the end of life’s work. Retiring from practice is often a time of stress and difficulty. Worse still timing (often not of our choosing) can make a big difference to the choices that are available and the value to be realised. Many find themselves approaching 'R-Day' with no options but closure and expensive run off cover – or worse!
The issues facing a partner or the practice when retirement and succession rears its head are many and varied. Large firms grapple with 'compulsory retirement ages' in partners or members agreements and the demotivating impact of the inflexible departure process. And then there are partner loans to repay and capital accounts to draw down. Leaving risk and reward skewed against the retirer while they exit and await the return of funds.
Sole practitioners, small and medium-sized practices all face questions about business continuity and the search for a buy in or a buy out when an equity partner stops. They may face the sudden loss of an equity partner through illness or death. Succession or exit plans may not have been made or may now not be relevant because of changes in the economic environment. All these issues can affect the ongoing continuity and viability of a practice or have a dramatic impact on the choices open to the retirer or the firm; reducing or removing the value realised on retirement.
Focussing on what you might call the small- to mid-cap market, there seem to be very few options available to exiting and continuing partners alike. The market really hasn’t developed much for decades in this regard. It’s time that we came up with much more optionality for those at retirement. It should be a time to relax and the enjoy the fruits of a life’s work. And there’s no reason it can’t be just that.
The financial services sector has some helpful experience that might inform the design of some new retirement and succession solutions. In that sector, practice buy outs and partner capital plans have been common for over 30 years. Retiring in stages and realising equity (as in real equity not partner equity which is simply the return of your own money) have also been common features in distribution businesses in financial services.
Of course, while there may be some similarities between financial services and legal services (both advise on the application of laws and rules, both have clients, both charge fees for advice) there are also important differences to consider when attempting a read across from another sector.
One solution is to look at the platform model - the basis for several of the emerging new model law practices. They are cloud-based, flexible and scalable. These nextgen law businesses are delivering freedom and flexibility for lawyers and clients.
Adopting a distribution and platform mindset means approaching retirement from a different start point. The start point is to look at client service, continuity of service, value realisation models and flexible planning. While the start point is different, the one fundamental point that will always be true is that planning is vital. The plan must be flexible and adaptable. One size simply can’t fit all for the plan, but one platform can fit all. That’s the biggest difference when we consider platforms versus partnerships. So, when retirement starts from the current status quo and the way it’s always been there’s no hope for a different and better outcome.
Borrowing from the Apple ad slogan, we need to 'think different'. Let’s set out to create a new product. A retirement solution. So, bearing in mind the deficiencies and risks of current retirement thinking let’s imagine a world of choices for a partner and their firm:
- Plan for retirement up to 10 years before the partners' planned retirement date
- New structure – become a limited company and use a platform for regulatory status and cloud-based services (Added benefits in operational cost and model being immediately)
- Optionality is key – keep open options to develop successors or find buyers or to bring in a team to run your business without selling your shares
- Adapt your plan to changing circumstances and stay in control right to your planned retirement date
- The retirement plan can work for a sole practitioner or a practice with many partners
This is not far-fetched. The structures exist to enable entirely flexible retirement solutions for law firm partners. The bigger question is whether those partners and their firms are able to contemplate changing their engrained expectations. Can they start work on plans that realise not just a better retirement outcome for them as individuals and the ongoing practice, but perhaps most importantly are in the service of their clients.
Alignment, or in simpler terms a 'win, win, win' is possible for clients, retirers and their firms. Having spent all of my career in financial and legal services I’ve seen first hand what happens when platforms are deployed in smart ways. Some different thinking and we can all win.
Michael Burne is founder and chief executive of Carbon Law Partners