With long-term interest rates at record lows, advisors must abandon their vision of fully financing their retirement by selling their book of business. Many opt instead to practice as long as they can, the head of La Capitale says.
With current interest rates so low, sellers must obtain a high sale amount to hope to earn decent retirement income, says Steven Ross, president and COO, Life and Health Insurance and Financial Services sector at La Capitale Financial Security. Ross designed the after-sale program for advisors’ books of business when he managed the LFS network, partner of Desjardins Financial Security Investments Inc.
“Why would I sell my book for four times the renewal commissions of $25,000 if I was still healthy enough to serve my clients and keep up with training? In other words, the sale will give you $100,000. Even at 5% or 6% interest you can’t get far with that. So why not keep my $25,000 in revenues?” an advisor will say.
Low interest rates also have a silver lining, he adds. “The cost of financing is extremely low. Investors might be ready to pay more to buy a book. Rates offered on business loans depend on each case, but they are certainly lower than before, in an era where an individual could obtain five year mortgage at a 3% rate.”
According to the figures available when he gave the interview in April, Ross noted that a 20-year Canada bond yielded 1.96% and a 25-year bond 2.03%.