TRANSITION TALK

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.

The sustainability of financial services businesses depends on the incorporation of new talent. The demand for next-generation talent continues to increase as longevity, continuity, and staying competitive become top priorities for many financial advisor-owners.

Next-generation advisors are in a unique position to leverage their generational experiences and opportunities that influence business value to carve out their ideal career path.

Opportunities Abound

The demand for financial advice is growing faster than the number of financial planners available to provide it. Household assets are increasing and the number of households with over $200,000+ in income has increased 10% in the last two years and is expected to climb.¹ Along with accumulating their own wealth, younger investors are set to receive inheritances from their parent’s generation. The need for asset management is further exacerbated by the fact that the average age of financial advisors trends older so many are set to slow down or retire over the next ten years.

The battle for talent is upon us and it is important to recognize that as a next-generation financial planner, you have more career choices than ever. You can start your own business, or seek employment at a broker-dealer, bank, wirehouse, or RIA. Even those choices have many options within themselves. For instance, in terms of joining an RIA, 15 years ago, small firms were often the only option. Today, you can work for a smaller regional enterprise, a national company with hundreds of advisors and staff, or an RIA somewhere in between.