TRANSITION TALK

Rights and Obligations of Equity Ownership

Posted by Kem Taylor on Apr 18, 2019 9:21:21 AM

Rights and Obligations of Ownership

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.*

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

The Sell and Stay® Strategy

Posted by Rachel Beckwith on Apr 2, 2019 1:50:50 PM

The Sell and Stay™ Strategy

Everyone has a unique vision of their future; we’re all trying to forge a path with our careers to that end goal where we can take a big breath and simply enjoy the life we’ve earned. While we might have an idea of the specific journey we will take, it’s important to remain open to alternate routes and unexpected shortcuts along the way. The hardest step on this journey for most is that which takes them out of the professional world they’ve been a part of for many years.

Unique goals and unique journeys require a creative strategy. For financial advisors, the Sell and Stay® path offers flexibility and freedom for an exit from the industry. There are advisors in the industry who have built a team of advisors with next generation owners and have built an internal transition into the sustainability of their business. The majority of our industry, however, is still made up of single-owner practices. Luckily, Sell and Stay® offers them the option of a similar exit path.

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Topics: Succession Planning, Selling Your Practice, Exit Planning, Sell and Stay™

Creating Collaborators Instead of Competitors

Posted by FP Transitions on Mar 18, 2019 4:38:46 PM

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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.

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Topics: Compensation, Succession Planning, Revenue Sharing, Building Your Team

Harnessing the Power of Mergers

Posted by David Grau Sr., JD on Jan 30, 2019 9:37:06 AM

Harnessing the Power of Mergers

Mergers are transactions that can take on many shapes, apply to almost any size advisory enterprise, and are infinitely customizable depending on the unique details and situations of the participating advisors.  

Advisors commonly think of a merger as the statutory combination of two practices into one in a tax efficient manner, but it’s better to think of the merger process as the combination of two or more advisors’ strengths, client bases, and cash flow streams, while reducing or eliminating weaknesses and inefficiencies – lofty goals to be sure, but readily achievable.

The reality is that mergers can be used to address a much wider set of challenges and opportunities including:

  1. Growth through acquisition (i.e., by merging a small practice into a larger practice, and then setting up an internal succession/continuity plan);
  2. Finding a successor, or becoming a successor (by first creating an internal, minority equity partner who later completes the buy-out of the founder’s S-corporation or LLC);
  3. Establishing a practical and reliable Continuity Plan and protecting the value of your practice against your sudden death, disability or retirement is best accomplished by having an equity partner such as may be created through a merger;
  4. Improving Enterprise or Revenue Strength through increased efficiencies and the added strengths of other advisory owners;
  5. Expanding market territory, expertise, and services;
  6. Building a strong, enduring business by combining the diverse strengths of multiple contributors.

To help illustrate these benefits, consider the following three examples as discussed in our recent Roundtable Talk, “Every Merger Is Unique,” below, each representing an actual merger between independent advisors that we helped orchestrate in 2018: 

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Topics: Succession Planning, Acquisition, Business Growth, Mergers, Continuity

10 Reasons to Professionally Value Your Business

Posted by FP Transitions on Nov 28, 2018 2:08:05 PM

10 Reasons to Professional Value Your Practice

Experienced business owners recognize the importance of tracking and monitoring the value of their practice over time. They know their practice is their most valuable asset, and by valuing it, they are empowered to grow, protect, and realize the value they have built.

Following are ten situations where it’s essential to have a current value and accurate understanding of your business.   

1. Increase Value

To cultivate growth and increase the value of your business, you need to have a starting point—a place to grow from. An accurate and comprehensive valuation will identify value drivers and growth opportunities, allowing you to create an informed growth strategy and make changes that will improve performance. The ability to track those changes and the value of the practice year after year enables you to see your progress and ensure your growth is on target

2. Benchmark Your Business

Tracking your value year after year allows for accurate benchmarking of the business. A thorough benchmarking report will look at your business and compare it to similar-sized businesses in the market, evaluating your company’s standing against the competition. Benchmarking reports reveal how your business stacks up against your peers as well as against leaders in the industry.

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Topics: Succession Planning, Acquisition, Business Growth, Business Value, Benchmarking, Valuation & Appraisal

Course Corrections for Your Succession Plan

Posted by FP Transitions on Oct 11, 2018 9:42:48 AM

Course Corrections

Building a sustainable business and incorporating new talent into your ownership structure is a process that takes planning and monitoring. But it’s a process that–when done correctly–can yield incredible satisfaction, growth, and value. A process with so many moving parts including multiple parties and expectations is bound to see some bumps. Sometimes those bumps can necessitate larger course corrections in order to keep the plan on track.

There are a variety of situations that can cause a larger adjustment to your succession plan–whether they’re driven  by G1 or G2, positive or negative, preventable or not, and expected or not. Below is an excerpt adapted from a section of Succession Planning for Financial Advisors, written by FP Transitions Founder and President David Grau Sr., JD.

If Founder Plans Change

The whole purpose of a succession plan is to help your business outlive you, so count on this being a somewhat lengthy process. While some plans on paper may go out 20 or more years, they are implemented tranche by tranche, with planned opportunities for reassessment and course changes or adjustments. At a minimum, plan for annual valuations to monitor value, annual benchmarks using that valuation data to track operational numbers, and plan adjustments every five years or so. Depending on the size of the business, the number of owners, and the goals, some businesses and firms prefer more frequent maintenance so that the course corrections are more subtle.

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Topics: Succession Planning, Selling Your Practice, Sustainability

David Grau Sr., JD on Advisor2Advisor Podcast

Posted by FP Transitions on Sep 4, 2018 11:42:47 AM

Last month FP Transitions President and Founder, David Grau Sr., JD, joined Scott and Pat on the Advisor2Advisor podcast to discuss common concerns related to mergers, and an all too prevalent (and costly) mistake that some mature advisors make when they fail to capitalize on the equity they’ve established by creating a viable succession plan. Listen here.

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Topics: Succession Planning, FPT in the News, Mergers

Asking Your Boss for Ownership

Posted by Kem Taylor on Jun 21, 2018 10:10:21 AM

Asking Your Boss for Ownership

As I talk with young advisors at local events and national conferences, I’ve increasingly heard concerns about broaching the topic of future ownership in the firm where they work. Some junior advisors have been promised ownership but don’t have anything in writing. Others don’t know the best way to bring up the topic in the first place.

It can be intimidating to ask the founder if their plans for their practice include you. However, you need to plan your career and to know how it will impact your family and life outside the office.

Take for example, Jennifer’s story: 

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Topics: Succession Planning, Next Generation, Equity Pathways

The Three Pillars of a Successful Advisory Business

Posted by David Grau Sr., JD on May 24, 2018 2:26:19 PM

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In my work, I’ve become a “professional traveler,” so I spend a lot of time in airports, and I get to talk to many of the pilots. Airline pilots are adventurous souls who enjoy finding ways to go faster, fly higher, and see things from a level that others cannot. They are also very methodical and go about everything with a checklist mentality, a clear purpose, and as much knowledge on the subject matter as they can muster. I find a lot of our entrepreneurial advisors to be cut from the same cloth. The goal of building something bigger, stronger, and better, helping clients with a different view of the financial world, and then sharing what they’ve built with others is woven into the very fabric of their being. Entrepreneurs like to grow, and they like to do things right.

Growth, of course, can mean many things. You might want to grow your top line revenue and assets under management. Maybe you’re looking to hire and build your team in order to improve client experiences. Perhaps you want to acquire a practice–or two–to quickly grow revenue, assets, the client base, and your own income. But, just like a pilot who wants to go faster and fly higher, eventually you’re going to need a larger plane, a stronger engine and airframe, even additional skills that maybe you don’t have–or don’t necessarily have a passion for developing.

Over time, we’ve seen that independent advisors don’t naturally build large, profitable, sustainable businesses. The ambition is there, and recurring, fee-based revenue certainly helps, but the skill-sets that prompt most of you to hang out your own shingle and start gathering clients who entrust you with their financial goals and assets are different than what it takes to run an organization of professionals and create scale. For these reasons and others, this is still more an industry of book builders than it is of business builders.

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Topics: Compensation, Succession Planning, Organizational Structure, Business Growth, Entity Structure, Sustainability, Building Your Team

8 Considerations for Your Merger Strategy

Posted by FP Transitions on May 18, 2018 7:06:12 AM

“Mergers & Acquisitions” is a phrase that gets used off-handedly, but those are substantially different transactions. An acquisition itself is a complicated enough process. But in a merger there are the additional components required to wholly integrate two separate businesses into one surviving entity.  Those complexities are why each merger engagement presents circumstances and challenges unique to the companies, and individuals, involved. Those complexities can be solved, but the path to the solution is often not apparent to the inexperienced or unwary. 

There are threshold issues a business owner should consider before jumping into the process of merging his or her business with another business. In the video below, two of our transactions experts, General Counsel, Rod Boutin, J.D. and Assistant General Counsel, Ericka Langone, J.D., discuss some of these important considerations.

 

You and the rest of the ownership team have decisions to make about the merger process itself, as well as decisions to make about the business you’ll create. These details should not be left for discovery and sorted out mid-process, but should be understood and planned for before implementing your merger strategy.

FIT The importance of finding the right merger partner(s) might seem like a given. But, before you make the decision, really consider what makes a good fit. After all, you’re going to have to work with these partners for many years to come. A particular merger combination might make sense financially, but it has to make sense culturally if it’s going to work–and if the business is going to thrive.

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Topics: Succession Planning, Business Growth, Mergers, Continuity

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