TRANSITION TALK

The last few weeks have been eerie. The markets are fluctuating, schools are closed, streets are deserted. The Portland area had a run of 65-degree sunny days followed by two days of snow. Our office is down to a skeleton crew, and the rest of the staff are working from home.

At the beginning of March staying away from the coronavirus seemed as simple as keeping anyone sick at home. Now the ambiguity of who might be carrying the virus has sparked fear of the unknown and driving us to make drastic, unprecedented changes in our lifestyles to protect those at highest risk for severe infection. The situation and preventative measures seem to change daily and vary state to state.

But, this, too, shall pass, and we are all trying to stay productive and maintain perspective on the current situation. Twelve years ago, we experienced a similar market shock. Though the circumstances and drivers are different now, the way the industry adapts and manages investor uncertainty to find our way to the other side of this, as innovators and entrepreneurs, we will have to think similarly.

Be a Resource

The biggest piece of advice I can give to advisors who expect to make it through is this: be a resource.

Be a resource for your clients and their communities. They’re all searching for guidance right now. Even if you can’t give them concrete answers, you can give them context. Nobody can predict exactly what is going to happen in the next few months, but you can support your community by sharing your knowledge of the financial system.  

Things have been changing for years, more and more people work from home and do so productively. Gone are the days, for many industries, where being in an office is a requirement. As technology continues to improve and online communications have become a daily occurrence, full-time employees around the country have had more freedom and flexibility, often able to work from any location.

Businesses around the world are asking employees to work from home in an effort to curb the spread of COVID-19. This is an excellent policy for public health, but how do you work from home without sacrificing productivity and client satisfaction? We've culled the internet and found helpful advice from people who know how to do it right.

With school closures across the country and many parents working from home, we asked a seasoned, work-from-home pro, our Marketing Director Elise Rogers, how she’s adapting to working remotely with her three boys full time. Below she shares a tool she’s created to keep her oldest son productively engaged and everyone else on task.

This new change in my family’s lives is causing my managerial mentality to go into over-drive, and like any manager, I am tackling this new homeschool lifestyle with a plan.

I have three kids (12, 2 ½ and 7 months old) and while my husband and I are tag-teaming the little ones, we want to be sure my oldest son is engaged and completing his online learning and not spending all his time watching TV or playing video games for the next month or more. Here is some insight I have gathered from creating this process for my own family.

Professionals working in the independent financial services industry tend to organize their business the same way as other professional service providers. Whether a dentist, lawyer, or wealth advisor, chances are that the firm owner is both a full-time employee and an active manager of the business as well as a shareholder. We are often asked in our consulting work about this dual role; shareholder and employee, and the interplay between them, particularly as it relates to compensation strategies. For example, should employees be rewarded with stock, or the opportunity to buy stock for achieving certain targets? Or, now that I am an owner, shouldn’t I get a raise?  

There are no simple answers to these questions, but context should help to understand the thought process required to make informed decisions when these issues inevitably arise.

Salary vs. Profit Share

At a first level, ownership and pay are distinct concepts with unique rules, purposes, benefits and risks. These concepts represent the division between the return an investor receives on the capital put at risk and the reward received by an employee for the work that is performed. This division should be simple, self-evident and unbending, but the reality in a small business is often far different. The smaller the company, the harder it is to maintain a distinction between ownership returns and compensation. In the most basic model, a one owner company, the black and white lines dividing a return on investment and wages for work often disappear completely.

As industry leaders in designing and facilitating internal succession plans for financial advisory firms, the leadership team at FP Transitions has its own talented, multigenerational ownership team in place. Our next-generation leaders have unique strengths and perspectives that keep our business constantly innovating and growing.

Your principal advisor has invited you to become an owner. Congratulations! The majority of next-generation advisors are energized by the demand for and the opportunity of succession planning, but most founders are stalled leaving successors frustrated. Your challenge as a successor is helping to make the process work for everyone involved. One important way to do that is to recognize the principal owner’s impediments and to help him or her understand the process and how accessible it actually is.

The Primary Obstacle

Like you, most successors—hamstrung by student debt, mid-stride in buying homes, building families, and still growing in their careers and earnings potential—don’t have money to invest in a business. Eager founders (“G1s” or first-generation owners) may seek to remove these obstacles by gifting or granting ownership, but this can taint the relationship as G1 may ultimately feel short-changed by giving away part of the business they built with their own sweat and toil. Beginning a partnership where one side feels cheated isn’t an ideal way to launch a successful, satisfying transition. There has to be a better way. In fact, many founders and successors come together each year with plans that are truly win/win. So where does the money come from? In many cases, the answer is the business itself.

Happy Holidays from the FP Transitions family!

In our first book “Succession Planning for Financial Advisors,” founder David Grau Sr., JD recounted one advisor’s early succession journey, including his ownership team’s bumps and triumphs as they executed the first tranches of their plan. Today, David circles back to provide an update on the successor team and all they’ve accomplished in six short years:

Ten years ago, around 2009, the founder and sole owner of Diversified Financial Consultants in Wilmington, Delaware, hired a local business attorney to help him develop a succession plan for his financial planning practice organized as an S-corporation. Calling on a practice’s local business attorney is a common starting point, and interestingly, it seems to be a common failure point when attempting to mesh the goals of the founder and next-gen advisors.. In this case, the founder’s attorney strongly suggested that in order for the founder to maintain full and unfettered control, the best course of action was a phantom-stock plan.The first draft was professional and thorough. It was also rejected out of hand by the team of prospective owners – they wanted to be real owners and investors in the business they were helping to grow.