TRANSITION TALK

The Case Against Revenue Splits [Article]

Posted by FP Transitions on Oct 28, 2020 6:16:00 AM

With all of the modern tools for practice valuations and equity management solutions available, some financial advisors still choose to use revenue splits, or a revenue-sharing arrangement, as a makeshift succession plan. For a practice owner, this can be a poor and shortsighted business decision for several reasons, including:

  • Unfavorable tax implications.
  • Potential asset and client disputes.
  • Reduced business value.
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Topics: Compensation, Succession Planning, Enterprise Strength, Cash Flow, Sustainability

Identifying Key Successor Traits

Posted by FP Transitions on Oct 21, 2020 6:19:34 PM

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As an owner of a successful financial advisory business, you understand that the team you’ve built is vital to that success. Taking the next step and giving your top talent the opportunity to become owners can increase your growth and ensure that the business will continue to be successful–for generations to come.

Assembling this successor team and committing to a long-term partnership are important and weighty decisions. How will you know who will make a good partner? What traits and behaviors suggest that someone will make a successful owner? Much of that depends on your own values and priorities as the majority owner of your firm.

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Topics: Succession Planning, Next Generation, Sustainability, Building Your Team

Benefits of Synthetic Equity for Next-Generation Professionals

Posted by Stuart Smith, JD on Sep 30, 2020 4:56:11 PM

Benefits of Synthetic Equity for Next-Generation Advisors

The term “synthetic equity” refers to a set of compensation tools that is commonly used to provide key employees some of the economic benefits of ownership without actual stock changing hands. While existing owners may benefit from synthetic equity by capitalizing on employee performance without relinquishing ownership, there are key benefits to next-generation advisors, too.

Reduced Financial Risk

One of the most beneficial aspects of synthetic equity for a next-generation advisor is that it does not require a financial investment in the firm. As a younger professional, you may already be juggling the financial obligations of a new family, a recent home purchase, or student loans, and you may not be interested in taking on the added burden of ownership buy-in–yet.

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Topics: Compensation, Succession Planning, Next Generation, Sustainability, Building Your Team

Remodeling Cash Flow [Article]

Posted by FP Transitions on Sep 10, 2020 10:23:33 AM

There are two ways to make money from a financial services business: wages and profit distributions. But, there are four ways to build wealth from the same model: 

  1. Wages (including bonuses)
  2. Profit distributions
  3. Equity income selling equity
  4. Equity value, or stock appreciation

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Topics: Compensation, Succession Planning, Enterprise Strength, Cash Flow, Sustainability

The Four Greatest Opportunities for Financial Advisors

Posted by FP Transitions on Jul 16, 2020 7:27:21 AM

Four Opportunities for Financial Advisors

Today’s Independent financial advisors face an endless array of challenges and opportunities. Identifying challenges before they arise is key for finding solutions and developing strategies for tackling the issues that present the greatest opportunities for improvement and growth.

The four biggest opportunities are:

  • Balancing Growth and Profitability
  • Recruiting and Retaining Talent
  • Creating Business Sustainability
  • Growth Through Mergers and Acquisitions

Balancing Growth and Profitability

Growth and profitability are inextricably linked and balancing the two within a single practice is the difference between building a one-generational practice and a multi-generational, sustainable enterprise.

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Topics: Compensation, Succession Planning, Acquisition, Business Growth, Mergers, Talent Recruitment, Sustainability, Enterprise

Synthetic Equity

Posted by FP Transitions on May 6, 2020 10:43:48 AM

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Equity-based compensation provides an excellent solution for practice owners who need a reward system that goes beyond the traditional salary/bonus structure and shares the economic value of equity, but not equity itself. 

A critical element in the success of any small business is its ability to recruit, reward, and retain talented advisors and support staff. To this end, equity compensation is often used to achieve these goals. Synthetic equity is a tool set that can provide ownership-level benefits without buying or selling actual stock in an advisory business.

To be clear, the process of transforming a single-owner practice into a sustainable business generally relies on equity. Equity, or stock, is what next-generation advisors invest in, and over time and with hard work benefit from, above and beyond what compensation alone can provide. Equity is the shareholder value created in a business managed from a bottom-line up perspective with a focus on earnings or profits as the ultimate financial goal. Equity is a powerful building and motivational tool, but with the opportunities come obligations. Because of these obligations, buying or selling equity isn’t the only way to offer key employees ownership-like benefits, nor is it always the best option.

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Topics: Succession Planning, Equity, Multi-Generational Ownership, Business Growth, Talent Recruitment

G2 Perspectives : Advice for Next-Generation Owners

Posted by FP Transitions on Feb 27, 2020 1:39:54 PM

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.

 

“If you could give one piece of advice to prospective G2 candidates what would it be?”

“Build up your skillset.”

Being an owner is about more than just advising clients and producing revenue. You need to look at–and contribute to–the broader picture. Know where your knowledge gaps are and spend time understanding these areas to expand your contributions to the business. Owners may focus their expertise in one or two areas, but to be successful they need to have a solid understanding in every aspect of running a business.

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Topics: Succession Planning, Multi-Generational Ownership, Next Generation

Financing for Successors

Posted by Christine Sjölin on Feb 21, 2020 10:32:39 AM

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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.

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Topics: Succession Planning, Multi-Generational Ownership, Next Generation, Sustainability, Enterprise

Targeted Growth Solutions for Financial Advisors - FREE eBook Download

Posted by FP Transitions on Nov 13, 2019 1:17:01 PM

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:

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Topics: Compensation, Succession Planning, Acquisition, Business Growth, M&A, Next Generation, Talent Recruitment, Enterprise

Elevating a Legacy : A G2 Success Story

Posted by David Grau Sr., JD on Nov 7, 2019 12:18:25 PM

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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.

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Topics: Succession Planning, Multi-Generational Ownership, Next Generation, Sustainability, Enterprise

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