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A group of panelists at RIA Edge Nashville on Wednesday characterized succession planning among registered investment advisors as carrying uniquely high stakes when compared to other sectors and advised founders to start planning for it at least five to seven years out.
Jeff Concepcion, founder and CEO of Beachwood, Ohio-based Stratos Wealth Partners, which is owned by SEI, said over his decades of building a wealth firm, he has seen the results of succession planning gone wrong—or a simple lack of it.
“We’ve had firms inside of our network, and I’ve had friends who passed untimely and unexpectedly without a plan in place,” he said. “Unlike many other industries, where you could probably triage more easily, in this relationship-driven, very intimate business, when something isn’t intact, it’s a train wreck, and we’ve just seen it happen.”
Concepcion said firms should not think about succession planning as an event, but as a process.
“It’s continual and ongoing,” he said. “If you want to sell your house and you just throw it on the market today, you’re not going to get the highest value. But over the course of the next couple of years, if you’re updating and pruning and improving, you’re building toward an eventual sale.”
Dave Wahlen, vice president, strategic partnerships, Merit Financial Advisors, said as he goes out to sellers in the market, he hears many people say the succession plan is “the person across the street.”
“I say, ‘Well, that’s great.’ You’ve got the SEC box checked or the legal document in place,” he said. “But is that really the best person to take your clients and take them forward? Is that the best person to help your team grow and expand? Because there’s a lot more riding on it than just your business and your client relationships. It’s the people that you’re responsible for as a firm or small business owner.”
Wahlen said firms should have a succession plan of at least five to seven years. One area his Alpharetta, Ga.-based Merit likes to see in place of that plan is equity sharing across the team rather than being held by one or two original founders.
“Everyone says they love their team and they have the best team, and I’m sure that’s true,” he said. “But then you look at the cap table, and it’s 100% owned by one person. It’s up to buyers sometimes to try to fix that. I think equity is powerful.”
Andree Mohr, president of RIA platform Integrated Partners, equated planning for advisors to how they would work with their own business owner clients.
“In order to be a good leader, you have to have a plan,” she said. “Many of you work with business owner clients, and while you talk to them about what they should do for their businesses, being a good leader means that you have also done that for yourself.”
Mohr discussed Waltham, Mass.-based Integrated Partners’ own succession process, which promoted her to president, a role previously held by founder and CEO Paul Saganey.
“It took time,” she said. “It definitely ensured that I had a good understanding of the whole business, and had focused on building relationships with the advisors across the organization, and then we planned for a year before we actually even announced it.”
Ted Motheral, executive managing partner and M&A partner development at Denver-based Mercer Advisors, drew on his legal background to suggest RIAs maintain a “comprehensive due diligence list” as if they were “going to market the next day.” That, he said, will set firms up for a sale if part of a plan or if the need emerges.
“If you do that haphazardly, two things are going to happen,” he said. “You’re either going to lose money on your deal, you’re going to elongate the timeline to get a deal done, or you’re just not going to get a deal done.”
Organization and communication, Motheral said, are key whether a firm is selling or just looking to grow on its own.
“On both sides of the conference room table that I sat at the last couple of years, I’ve seen the successes from companies that have been organized and communicated very clearly what the plan is,” he said.
Wahlen of Merit said his firm often looks to ensure that an RIA is a true business that can show its model.
“Is this just a book of clients with revenue and admin?” he said. “Or is it an actual business with expenses and overhead and a team and the lease and they’ve got a charitable arm? … And could this business and your team be successful on our platform? And we just want to be honest with ourselves about that and with the seller about that.”
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