Today’s independent financial advisors face an endless array of opportunities (and challenges). The key is to identify impediments before they arise and to develop strategies for tackling the issues that present the greatest opportunities for improvement and growth.
There are four main challenges essential to the success of your business:
Topics: Compensation, Succession Planning, Acquisition, Business Growth, M&A, Next Generation, Talent Recruitment, Enterprise
The growth and profitability of your business are interconnected. Top-line revenue growth is essential, but it is no good without bottom-line profitability.
Balancing growth and profitability comes down to compensation structure and the equity pathways created for owners of the business. The profits generated through properly structured equity pathways are a catalyst for growth and the means to accomplish long-term strategic objectives including recruiting new talent, internal succession, and acquisition.
In our newest webcast, VP of Research and Analysis Eric Leeper, CFA®, discusses compensation solutions for businesses in varying stages of growth and how these strategies can boost both top-line growth and bottom-line profitability.
View webcast clip below and click here to watch the full video.
Topics: Compensation, Succession Planning, Equity Pathways, Enterprise
Independent financial advisors face an almost overwhelming set of challenges, but with challenges come opportunities. Many of these challenges fall into areas of:
These opportunities and challenges are often interrelated. Tackling one challenge often helps solve another, thereby strengthening your business in other ways. A successful acquisition is supported by a strong enterprise that is capable of handling exponential growth, and building a strong enterprise requires the incorporation of next generation talent. Retaining and nurturing next generation talent is made possible with the proper compensation systems, and maintaining an effective compensation system demands business profitability. Bottom-line profitability increases when it is properly balanced with top-line growth. Finally, to bring it all together, growth is supported by building a strong, sustainable enterprise.
In this new webcast, President and Founder David Grau Sr., JD, discusses the top challenges and opportunities of the profession and how they can be addressed using an end-to-end, integrated strategy.
View webcast clip below and click here to watch the full video.
Topics: Compensation, Succession Planning, M&A, Talent Recruitment, Equity Pathways, Enterprise
A large percentage of advisory businesses use some form of revenue-sharing arrangements, or an eat-what-you-kill system, that rewards sales and production tied to the top line, not the bottom line. This is true of small practices as well as larger businesses. “Fracture lines” are built into the practice model as individual books or practices are built in an environment that starts out collaboratively but most often ends up creating competitors.
It’s important that independent advisors move away from obsolete practices and improper building tools held over from experiences in the wirehouse world. Creating a sustainable and valuable business should be the goal of every advisor. Building efficiently and effectively takes the proper tools, the proper structure, and the proper team.
Advisors need to embrace the most powerful and lucrative tool they have: equity. Equity is the value of the business separate and apart from the cash flow and compensation paid for work performed.
Topics: Compensation, Succession Planning, Revenue Sharing, Building Your Team
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.
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:
Topics: Compensation, Entity Structure, Tax Regulations
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.
Topics: Compensation, Equity, Organizational Structure
ur lastest FP Webcast, President and Founder, David Grau Sr., talks about how to execute a proper succession plan. From thinking realistically about your time to harnessing second-generation talent, David walks you through the benefits and logistics of starting early.
Topics: Compensation, Succession Planning, Webcasts, Equity
This webcast features Vice President Eric Leeper, CFA as he leads you on a deep dive into the succession planning process by exploring cash flow modeling and equity compensation as a way to stimulate exponential growth within your company.
Topics: Compensation, Succession Planning, Webcasts, Equity
Building a business that will continue to grow – even as you begin to work less – requires an efficient infrastructure and the right people. Creating such an infrastructure takes time and constant adjustment.
If you offer competitive wages and benefits you’ll not only attract, but hold on to talented professionals. Additionally, you should consider the strategy being used increasingly by many of your peers: equity compensation. Equity is providing an almost unfair edge for retaining and attracting top talent in the financial services industry.
Equity rewards key staff members for their dedication by granting them a stake in the business’ success and growth as a part of their compensation package.
Topics: Compensation, Succession Planning
Professional goals should extend beyond just earning a living during an advisors peak working years, learn how to perpetuate your income into the future.
Topics: Compensation, Business Growth, FPT in the News, Cash Flow, Sustainability