TRANSITION TALK

In many professions and in most businesses, succession planning and sustainability are not pressing issues. Most people don’t need a multi-generational dentist office, for instance. Who really cares if the neighborhood hamburger stand or your favorite restaurant has a succession plan? But in the financial services and wealth management industry it’s different.

Advisory clients have a clear–and not unreasonable–expectation of receiving continuing advice and investment management tailored to the length of their lives, not to the length of their advisor’s career. Being an independent financial professional necessarily indicates a commitment to the future; the element of planning implies that a financial advisor is starting something that will not and should not end with his or her own career. 

Consider the average successful financial advisor is in his or her mid-50’s. At that age, the owner/advisor will likely continue to work for another 15 to 20 years, even as time in the office gradually diminishes over the last half of that plan. At this time, clients are transitioning into retirement and are likely to need more financial guidance, not less. The term “succession gap” refers to the time difference between a single financial advisor’s career length and a client’s wealth cycle.

You took the risk to become independent, hung out the shingle, and spent a myriad of sleepless nights worrying about how to build a business that paid the mortgage. A few bumpy months led to a smoother ride over the years; you now have a strong entity and responsibility over the lives of your clients and employees. As you stabilize, concern shifts from survival to how to perpetuate something that has become bigger than you. Your focus becomes generating growth that secures your future, as well as that of those onboard.

With Growth Comes Challenges

Floyd Green, Founding Partner at Cornerstone Wealth Management in Raleigh, North Carolina faced one of the biggest challenges of his life. Unexpected circumstances forced Floyd to quickly reduce his work hours from 45 to 20 hours a week. Too young to retire and with a staff that had “come to expect a paycheck,” he had to consider how to ensure his business not only survived, but thrived, without him as the sole growth engine.

Thanks to existing relationships, recruiting advisors who shared his vision, values, and passion was the first hurdle cleared; deciding how to effectively incorporate them into the ownership structure would prove more difficult. The issue was not only one of compensation, but also cultivating the motivation and mentality required to be an owner amongst Floyd’s key producers. He wanted to encourage ownership of outcome, a decision-making mindset that considers the future impact on the business.

For many RIA founders, strategic planning—including succession or exit strategies—is not a fun, “can’t wait to get started” activity. I’ve walked in those shoes.

It felt easier, for awhile, to just go with the flow of how the business was naturally unfolding. After all, our asset levels and revenues were up! Dealing with the more urgent, day-to-day tasks filled my days so it was easy to be the queen of avoidance and procrastination until circumstances were such that I—we—had to act.

We Were Pushed

For the record, I hate being pushed! Most people do.

But we were literally pushed to take succession planning action by both external and internal events in our business. In our situation, there was unexpected staff turnover, a partner’s illness and another’s untimely retirement.

A push could be any number of things that are happening to (and within) your business. A push could also be personal: your health, your marriage, your family. Whatever the circumstance or event, you feel forced to do something when you aren’t ready to take action, or it’s not what you thought you wanted.

Pulled by Vision

In an earlier post, “Mirror-Mirror”, I spoke of the importance of self-reflection and truly knowing what your own personal “win” is relative to your business as well as to the next chapter of your life and career.

For me, clarity around my own vision for our business and my own next chapter (aka my WIN-WIN) was key to experiencing a major shift in perspective.

My excitement about what I wanted next, truly pulled me forward. The feeling of being pulled to the next chapter actually helped to erase the worry and anxiety that had me resisting the process of negotiation and second guessing the sale of our business.

It’s been a while since “keeping it in the family,” assumed your literal family. Yet, many advisors approach succession with pride when they have the opportunity to pass their advisory legacy to a son, daughter, niece, cousin, or other relative.

Choosing a successor who is a part of your blood family doesn’t mean the succession process becomes 10 times easier; it doesn’t mean you just hand over the keys one day with a, “See ya later, kid. Don’t burn the place down.” It requires the same careful planning and communication to ensure ownership of the business ends up in the right hands.

Tom and Paul Morrone of US Wealth Management in North Haven, Connecticut have always been a close father / son unit, but that didn’t automatically mean that Paul would step into his father’s shoes one day. Instead, he forged his own path before recognizing the business and the life his father had built was exactly what he was striving for. And still, ownership wasn’t just handed to him.

Tom insisted that Paul EARN ownership, and together they sought help for the succession process. It wasn’t a matter of trust. It was a matter of making sure they hadn’t missed any detail, and that they had the most beneficial path for both of them.

Below, watch the Morrones put their journey in their own words.

In the M&A space for the financial services industry, everyone wants to acquire. Few advisors, however, take the time to sit back and think about what they want from the acquisition: what kinds of clients and assets would complement the existing business, what new staff and advisors are required to run a larger book of business, and what will the new business look like post transition.

In our experience, the advisors who are most strategic are the most successful.

Michael Lutz of Legacy Financial Strategies in Overland Park, KS understood that acquisition was a viable and smart path for growing his business. He wasn’t just looking to gobble up as many practices as he could, however, because he also understood that if he chose his targets strategically, he could not only grow his business but he could ensure its legacy by using acquisition as a vehicle to recruit Generation Two talent to his firm.

Using FP Transitions Enterprise Consulting to develop and execute his internal succession plans, Michael offered equity, and with it a modicum of control, to recruit smaller advisors with existing books–and new advisors without–to Legacy Financial Strategies and created his “growth machine”. These mergers and additions increased the value of what they all now own and are committed to continue building.

With the right strategy, instead of just acquiring clients and assets, a “growth machine” is created, and the foundation for future growth is built with succession through acquisition.

Watch Michael’s story below.

FP Transitions client Greg Hoffman found the best match for his business, Hoffman Financial Resources, when he added Ross Lawrence to his team 5 years ago. Ross shared Greg’s commitment to the community and passion for helping the people of Nevada, MO make educated financial decisions.

Three years later they embarked on their succession planning journey with FP Transitions. Valuation in hand and succession options laid out, Ross and Greg chose the accelerated path with the help of bank financing.

Five years after joining the Hoffman Financial Reources team, Ross took over full ownership and Greg moved into his role as mentor, free to enjoy the life he’s earned after 30 years of financial advising.

Don’t just take our word for it. Watch Ross and Greg’s story below.

Creating a succession plan can be a momentous task, leading to a transition that transforms not only the business, but lifestyle of everyone involved. It often takes a team approach to cover all aspects of the transition and the personalities involved. We understand our strengths and our limits in the planning process, and embrace the opportunity to work with diverse professionals, coaches and consultants. Each brings something new and valuable to the table, and their role in the process can be as unique as the business going through transition. This guest blog is part of a series featuring some of our partners and colleagues who contribute to the succession planning process and supplement FP Transitions’ analytical and strategic skill set.

Our first guest blogger, Marty Kurtz, CFP, is a past president of the FPA and a terrific example of an advisor who transformed his business and gained the flexibility to move on to a new, meaningful chapter in his career. After completing his own succession plan, Marty launched Turning Point, a coaching program centered on a 3-day getaway where successful advisors can gather with a small group of their peers to focus on their vision for the future. In his own words, Marty explains what led him to create this valuable retreat, and how Turning Point fills a void for his fellow professionals.