Your Transition Team & Nonadvocacy Support (Excerpt)

Posted by FP Transitions on Mar 9, 2017 8:09:21 AM


The following sections are excerpted from the book Buying, Selling, and Valuing Financial Practices by FP Transitions president and founder David Grau Sr., JD.

Let's highlight the importance of having a strong transition team in your corner as either a buyer or a seller. In fact, it's important to have a comprehensive team when jumping into most business evolutions, including (but not limited to) entity creation, compensation restructuring, and internal succession planning.

Assembling and Managing Your Team

Advisors who want to buy or sell a business will need some help to do the job right. A typical team for this purpose will include:

- A qualified valuation analyst

- A tax professional

- A lawyer

- Someone familiar with your regulatory structure and your IBD/custodian’s rules & procedures

- A qualified intermediary

To be clear, this list applies to both buyers and sellers. Both parties typically need their own team, with some slight overlap.

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Topics: Selling Your Practice, acquisition, book, buying & selling

Fleischer v. Commissioner: Has Your World Changed?

Posted by Rod Boutin, JD on Feb 17, 2017 3:14:43 PM

Probably not. 

When one person’s misstep in using a common industry practice gets reported in the press or a blog, a reader may worry if he or she has also strayed. Some have this response to the recent Tax Court case Fleischer v. Commissioner. The many differing opinions and commentaries on that case have advisors asking how this ruling affects their existing entity structures and tax reporting.

Many of the articles on Fleischer either oversimplify the court’s ruling, misinterpret the court’s decision to suggest an advisor with a business entity (either a corporation or a limited liability company) must abandon the entity, or miss the point entirely. The danger in those messages is their failure to understand the details of the Fleischer case, and not emphasizing that in the proper execution of an integrated plan – one that accommodates corporate law, tax law, and FINRA regulations – there would have been a different outcome.

From the Fleischer case, understand this: You won’t have a problem if you do things right. But setting up an entity in a highly regulated industry and operating it correctly is intricate. You cannot do it on LegalZoom or with an attorney or accountant unfamiliar with FINRA regulations. The Fleischer decision does not change the fact that entities are worthwhile for a wide variety of reasons.

The Fleischer Case

In the Fleischer case, the court focused on who controls the earning of the income, citing the two-part test recognized in the 1982 case of Johnson v. Commissioner. In that case, Charles Johnson played for the NBA’s San Francisco (now Golden State) Warriors in the 1970’s. He formed a Panamanian corporation to receive his income from the team. Citing additional precedent, the Johnson court held that the corporation did not meaningfully control Mr. Johnson’s services as a basketball player, nor did the Warriors have notice that its player was contractually affiliated with the entity. For those reasons, passing the player’s salary through the foreign corporation did not shelter Mr. Johnson from employment tax. The Johnson court stated two tests, both of which must be met:

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Topics: Compensation, entity structure, tax regulations

Your Future, Your Choice

Posted by Laurie Nichols, RLP, CPC & ELI—MP on Feb 7, 2017 9:07:22 AM


If you’ve been reading my recent posts, you know I consider myself a “win-win” gal.  You’ve read about how the self-discovery of my real win—not owning the business—was key to not only successfully exiting my business, but also launching what I now call “my next chapter.”  

Up to this point, I was primarily speaking of the founder’s win, and that of a buyer. In my research and work with clients who are firm founders, I have noticed that their perspectives on their own personal transition strategies often fall into two camps. That is, some are asleep at the wheel, relying on autopilot; and others are convinced they’ve already got a plan ready to go whenever they are.

In recent months, I’ve come to recognize there is one more win to add to the mix. This realization has come about as I met with a growing number of smart, hard-working “junior” professionals who are frustrated by a lack of clear strategic vision for the firm and their role in it. Even those who are designated successors, described a lack of transparency from the founders regarding the firm’s financial picture, vision and strategy.

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Topics: selling, next generation talent, next generation ownership, culture, Guest blog, exit planning

Succession and The Family Business [VIDEO]

Posted by FP Transitions on Jan 17, 2017 12:52:19 PM

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.

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Topics: Succession Planning, acquisition, webcasts, next generation talent, testimonial, clients, growth, family business

Navigating Uncertainty in Turbulent Times  [NEW RESOURCE]

Posted by Jessica Villagrana on Jan 10, 2017 10:31:48 AM

Turbulent Seas

Rough Seas

In the heyday of maritime exploration, traveling the world’s oceans promised adventure and immense risk. Turbulent seas and unfavorable weather endangered crews, threatened ships, and spoiled the best-laid plans. Seasoned captains applied skill and experience to determine whether to proceed with caution or seek haven; decisions that couldbring adverse consequences or reap rich reward. 

As the captain of your business, you’ve undoubtedly surveyed the course ahead and evaluated the inherent risks and rewards. Are you prepared to weather these seas? Or is it time to pull into safe harbor? 

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Topics: Selling Your Practice, industry news

Using Multiples for Value [INFOGRAPHIC]

Posted by FP Transitions on Dec 19, 2016 9:52:07 AM

Everyone seems to want the easy (and free) way to determine value, but is a multiple of value really a good choice? Here's a hint: no, no it's not.

The infographic below uses real data from the FP Transitions 2015/16 Valuation Database to illustrate why applying a multiple to your revenue is a terrible way to determine the value of your practice, and why you're likely to end up losing more money than you avoided paying up front.

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Topics: Valuation + Benchmarking, value, multiples

Mirror, Mirror

Posted by Laurie Nichols, RLP, CPC & ELI—MP on Dec 7, 2016 9:00:30 AM


This is the third piece in our series with guest writer Laurie Nichols (read the first here and the second here) that chronicles her personal journey of selling her her business four years ago.

After spending nearly 30 years in financial services, including more than a decade wearing the Chief Compliance Officer hat, I don’t often make definitive claims or promises.

However, as I reflect on what has brought me to where I am now—living and working with renewed energy and excited about the future—there is something I know for sure: A successful transition from business owner to an inspiring next chapter starts with looking in the mirror and challenging yourself. 

How I Know

As I started to experience some “mid-life wake up calls,” both personally and professionally, I resisted looking at the truth of where I was in a holistic way.

I was a worrier. A deeply committed worrier who thought the key to financial security and success was to just keep pushing the same old boulder up hill and hoping it wouldn’t roll down.

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Topics: selling, Guest blog, exit planning

Ship vs. Liferaft - What Are YOU Building?

Posted by FP Transitions on Dec 6, 2016 9:17:33 AM

Ship vs. Liferaft - What Are You Building - Enity Structure

Picture a bright orange life-raft floating on a dark blue, storm-tossed ocean. In this durable, well-built, small craft sits an independent financial advisor. Our advisor has a paddle for propulsion – the means by which to move the raft to safer or more prosperous waters. Our advisor has the means to collect and store rain water for drinking, and fishing tackle to bring in food for survival – the craft literally is floating on a sea of food and fuel to sustain and propel its lone occupant. Our advisor also has a compass for navigation to guide forward progress along a chosen route. 

In terms of organizational structure, this sole proprietorship model is a common starting point for many advisors. With this model a single advisor is compensated on an “eat-what-you-kill,” basis–the clients are under his or her service; he or she receives 100% of the revenue to pay their own individual expenses, and takes 100% of the profits (if any) that remain.

To its credit, this basic production-based, or advisor-driven, model is extremely adaptable and simple to establish and operate. And while it may work for a single advisor office where there are only business expenses and compensation for one, it should not be mistaken for a building block for larger, more sustainable business models. Unfortunately, it often is.

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Topics: Compensation, equity, organizational structure

The Dangers of Napkin Negotiations

Posted by Jeanie O'Reilly Northcutt on Nov 2, 2016 12:55:10 PM


The financial services industry is a personable one. Professional networking and client prospecting depend on your charisma and ability to connect beyond surface pleasantries. But when it comes to selling your business, it’s important to keep your cards close to your chest.

It’s very easy to get excited about the prospect of transitioning your business and moving forward in life–especially, when you’re talking with a colleague you’ve known for years. However, the excitement can cloud your ability to think through details and maintain a healthy level of confidentiality. It’s important to avoid casual negotiations and hashing out deals without proper documentation.

These casual conversations–also referred to as handshake agreements, or napkin negotiations–can lead to a lot of problems, including a loss of realized value. 


The first issue that could arise from the casual mention that you’re even thinking about selling your business is an influx of phone calls or visits from people who want to buy. It’s like blood in the water. And while buyers flocking to you may seem like a boon, it can quickly become overwhelming. Without an efficient screening system, it becomes time consuming and difficult to sift through the phone calls to find serious and qualified candidates, let alone the person who fits your ideal criteria to take over your business. You also make yourself vulnerable to predatory buyers.

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Topics: selling, acquisition, M&A, deal structure, buying & selling, negotiation

The M in M&A

Posted by FP Transitions on Oct 26, 2016 9:10:40 AM


M&A. Mergers & Acquisitions. Everyone’s favorite topic. Understandably so when one of the fastest ways to grow is to acquire, and as such add exponentially more clients (and assets) to your business in one fell swoop.

What about mergers though? Often mergers are lumped in with acquisition talk and statistics. Their role and effect on an advisor’s future, however, is much different than an outright sale or purchase.

Our new book, “Buying, Selling, and Valuing Financial Practices–The M&A Guide,” written by FP Transitions president David Grau Sr., JD clarifies that mergers are, legally speaking, “the joining together of previously separate companies into a single entity.” And unlike an acquisition / sale, a merger also means that the owners of the previously separate companies remain in the newly formed entity and retain some amount of ownership stake. 

Mergers can be an important part of exit and growth strategies alike. Consider this example from the book:

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Topics: selling, acquisition, business growth, M&A, buying & selling, mergers

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