TRANSITION TALK

As a next-generation advisor, pursuing ownership as part of your career path is an important decision. Business ownership requires a variety of skill sets and comes with both benefits and responsibilities that go beyond the role of advisor. Before you consider asking for ownership from the existing owners of your firm, you need to demonstrate that it is not only something you are capable of, but something you have earned.

Starting with these four steps as early as possible will help you build a strong case for ownership:

Over the last ten years, increasing numbers of advisors have begun the process of creating sustainable businesses. Many advisors started out as a book or a practice—one-generational models. They took steps to create much more valuable, multi-generational businesses by focusing on enterprise strength and setting up or restructuring essential business structures.

The M&A marketplace is becoming increasingly competitive. Businesses need a strong value proposition to step away from the crowd. Owners who have taken steps to work on building their enterprises are in the best position to leverage their unique business aspects to access more growth opportunities and become successful acquirers or merger partners. 

There has been a fair amount of talk over the past decades about consolidation in the financial services industry. Most of the white papers and articles addressing this concept have presented it in a negative light as though it signals the end of the lifestyle practices that dot the landscape in this profession. Industry regulation, growth, technology, fee compression, competition, and aging advisors forced smaller practices to consolidate just to survive. At least that was the working theory.

As the original organizers of the open marketplace for independent advisors seeking to sell or to acquire, we have a slightly different perspective on consolidation; we view it in a very positive light. Consolidation looks very different than what the prognosticators laid out decades ago. From our vantage point of working with businesses below $2 billion in AUM, we’ve observed the industry is indeed experiencing some consolidation, but not only due to acquisitions or roll-ups by companies like Focus Financial, United Capital, or Dynasty. The consolidation that we see every day is owners of stronger, sustainable enterprises acquiring smaller, one-generational books and practices.

Viewed in this light, how better to look after 250 clients or households when a single-owner advisory practice nears retirement than to find a very similarly structured business that can step in, take over, and provide for the staff members as well? This process works for the buyers, the sellers, and, most importantly, the clients.

As more wealth management businesses look to internal succession, more new owners are being created. As a next generation advisor, you should consider whether ownership is the right path for you, and it is important to understand what ownership entails. Owners of a privately-held business, even with a minority position, enjoy several rights and privileges in exchange for their investment in the company, but they are also responsible for meeting certain obligations.

The following rights and responsibilities apply to all owners whether the business is a corporation governed by bylaws or a limited liability company with an operating agreement.*

Founding (G1) advisors are asking the wrong question: “How do I hire and retain employees with an entrepreneurial mind-set?” It should be, “How do I attract and retain employees with the skills and expertise to take my business to the next level?”