The golden age of retirement is upon accounting firms, as most have at least one partner in the 77-million-strong Baby Boomer demographic, whose oldest members have already started reaching the 65-year milestone.

The majority of firms with two or more owners do not mandate retirement, however, as only 47 percent of the 509 multi-owner firm respondents to the American Institute of CPAs' 2012 Private Companies Practice Section Succession Survey reported having an age for mandatory retirement or mandatory sale of ownership interest.

The data skews by size, as all firms with more than 200 full-time equivalents have a policy in place, according to AICPA vice president of firm services and global alliances Mark Koziel, while only 6 percent of single-owner practices and sole proprietors, polled in a companion survey, have a practice-continuation agreement at all. The firms in between suffer from the chronic profession-wide lack of succession planning, which 46 percent of multi-owner accounting firms claimed to have in place in 2012.

This imbalance is also evident in the 2012 Rosenberg Practice Management Survey, which found that of the 396 participating firms, while 85 percent with annual fees greater than $20 million have mandatory retirement policies for partners, it drops to 79 percent for those in the $10-to-20 million range, 50 percent in the $2-to-10 million range, and only 14 percent of firms with fees less than $2 million have such policies.

While the AICPA is seeing mandatory retirement "become more and more the norm," said Koziel, the profession still lags in universal adoption. Experts agree there are arguments to be made for both sides of the controversial issue, and emphasize the importance of several major factors in the debate.



Marc Rosenberg, president of Chicago-based consulting firm The Rosenberg Associates, which co-authored the Practice Management Survey with The Growth Partnership, credits this disparity in mandatory policies to different "one firm" versus "group of individual" firm management styles.

"The common thread is that the firm always should be more important that the interest of an individual partner -- like a real company," he explained. As the data shows, mentality is often tied to firm size. "The smaller the firm, the less likely the partners have mandatory retirement," Rosenberg continued.

The "rugged individualistic" approach, according to Gary Boomer, CEO of accounting firm management and technology consultancy Boomer Consulting, not only hampers the drafting of a retirement policy, but can be a mark in the con column against them, as a mandate can lead to a sudden "loss of institutional knowledge."



"Without mandatory retirement, there's an increased need for immediate development of the middle," Boomer continued. "One of the problems some firms run into, when [retirement] is extended out beyond what was originally planned, is that the middle left because they didn't see an opportunity. If you didn't develop the middle, you're caught with the decision of, 'What do we do?'"

The preferred framing of that question, of course, is a more forward-thinking, "What should we do?" and begins with early identification and development of firm leaders.

Mandatory retirement creates space for young professionals and their necessary innovation, something Top 100 accounting and business consulting firm SS&G recognized in establishing its own policy, according to senior managing partner Gary Shamis: "For us, a key reason is we felt it gave a wrong message to younger partners and people ... we didn't want to wait so long that it detracted from them wanting to be at the firm," he said. "It creates negative sentiments with partners hanging on too long. There's the idea that people want to work longer, but a young partner wants to get going with life, and if they find a partner hanging on too long, they think, 'Is it worth it?' It's a big issue regarding partner transition."



Shamis witnessed this "white knuckling" at a firm in Chicago, where SS&G helped provide a suitable exit plan for an 83-year-old partner who hadn't yet sold his stock.

"People want to work longer and are looking at it on a selfish basis, that they are healthy and can work longer," Shamis explained. "But what does it do to the firm, to motivate 40-year-olds, or young 20-year-olds?"

During a practice-management review of a six-partner firm in the Midwest, Rosenberg met the "nicest guy" in a 67-year-old partner whose typical day involved getting to the office around 9:30 a.m., leaving in the afternoon, and, in between, sorting mail, taking naps and ducking out for lunch with his wife.

"The partners couldn't bring themselves to walk up to him and say, 'It's time to retire,'" recalled Rosenberg, who was subsequently tasked with that responsibility. "They loved him like a father, but they owed it to him to allow him to retire with dignity."

When Rosenberg approached the 30-year veteran of the firm with these concerns, he responded that he'd be glad to retire -- he was only waiting for the partners to bring it up. The firm established a mandatory policy soon after.

"The first thing you need to do is [have] partners go around the table and tell other partners when they plan to retire, and whether they plan to retire cold turkey, part-time, and if part-time, for how long," Rosenberg advised. "It's a tear-jerking event, and the first time they're forced to give thought to contemplating their own mortality. I've seen very emotional sessions like this, but they need to do it, because the other partners need to know what their plans are."

The common mandatory age of retirement or sale of interest is 65, according to 54 percent of responding firms in the AICPA PCPS survey. Fifteen percent of firms require it in the 66-69 age range and 14 percent at the age of 70.



Continuations of these partner-client relationships past retirement threaten succession plans and even counter the main reason that firms have a mandatory retirement policy, according to Rosenberg: "to protect their largest asset, which is by far and away the client base."

"With the transfer of clients, if you have a process that's smooth, people know," Boomer explained. "A lot of good firms, a year before someone is retiring, they no longer have that partner on the account, but as an advisor. They actually transferred the client over to someone else, which makes it much smoother. [At some firms], if a partner doesn't transfer clients, there's a penalty in deferred compensation in their payout -- a unique thing we never saw in the past. If a partner doesn't retire at age 65, goes to 72 and hasn't really transferred clients and gets sick, the firm is the one really suffering there ... the clauses are written in to protect the firm."

"The best way to transition clients is to never have to do it in the first place," said Rosenberg. "When a new client comes in and, in fact, even on the sales pitch, they should be bringing with them another key person from the firm and immediately establish multiple touch points with the client." This over-reliance becomes immediately clear to partner groups when Rosenberg urges them to "play the math exercise" during strategic planning sessions -- subtracting future retiring partners and adding the necessary ones over a 10-year period to achieve the firm's growth goals. They usually get stuck on the addition. "The partners look at themselves and say, 'Oh my goodness, we've had no new partners and now we need 11?' They don't have that staff on board. Then what often happens is what headlines [Accounting Today]: mergers."



To avoid that more complicated bit of addition, then, firms should circle back to the subtraction, as clear retirement policies motivate younger high-potentials.

"Firms are not big enough and don't have the room to keep accumulating old partners -- they're not going to get clients at some point," Rosenberg explained. "It's a real turn-off to young people to have firm partners who never want to retire, and if you flip it around, and limit [mandatory retirement] to a partner in a firm: 'How much do I want to do something I don't want to do and is going to hurt me?' And what they're doing is saying, 'Sixty-five isn't what it used to be, I'm still vibrant and sharp. Just because magic 65 comes, I don't want to retire. I love my job and clients.'"

That argument is viable, according to Rosenberg, but should be an exception - legally - even at smaller firms, with the option of hiring back under (usually year-long) contracts or petitioning partners for a waiver, both of which also protect against possible age-discrimination lawsuits. "If a small firm doesn't have mandatory retirement and a partner doesn't want to retire, it's going to be a war -- the partner is going to threaten this and that. Odds are they probably wouldn't if there's no mandatory retirement revision. It's nice to have that provision in place, so firms are forced to waive it in order to accommodate someone. But if you don't have it at all, it's really hard to resolve."

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