By Lewis J. Walker, CFP®, CRC®
Lewis J. Walker, CFP®, CRC®, is president of Walker Capital Management Corp. and Life Transitions Advisors LLC. He is a founding shareholder of The Strategic Financial Alliance Inc., an independent broker-dealer in Atlanta, Georgia. (firstname.lastname@example.org)
An entrepreneur, business owner, or professional invests decade-spanning energy in building an enterprise. It’s the culmination of a life’s work, applied wisdom, and the reward for diligence. It’s the pot of gold at the end of the rainbow, the ticket to a well-funded retirement.
Exiting one’s business, contemplating the process of disengagement, is a major life transition. When a guest on the television show Dr. Phil articulated a problem or challenge in life and what they were doing about it, the host, psychologist Dr. Phil McGraw, would ask, “And how’s that working for you?”
As the age wave tsunami rolls on, the Dr. Phil question will become de rigueur in our dealings with aging business owners and with advisers and independent owners of advisory and RIA practices. As we redefine the concept of retirement around meaning and purpose, the thought of “letting go” gets tougher to embrace. Use of the term “exit strategies” with a business owner may be akin to suggesting that we spend the afternoon discussing his or her funeral or planning for a root canal. While the term “succession planning” remains in the lexicon, perhaps “continuity planning” is a better descriptor, framing ongoing and refocused relevance during the journey from now to a new state.
The first class of CFP practitioners graduated from the College for Financial Planning in 1973, the year the first baby boomers turned age 27. The graduate who was 27 in 1973 is now 67 and is facing the same conundrums as our clients. How do we define retirement? How do issues surrounding health and caregiving impact our future? What will we do with the business, the non-liquid nest egg? How do we pass on the wisdom accumulated through life experiences?
Enter the Next Generation
Mark Tibergien, CEO of Pershing Advisor Solutions, notes that only 22 percent of the advisory population is under age 40; only 5 percent under age 30.1 The average age of financial advisers is in their 50s, while data from Cerulli Associates pegs 22 percent of advisers as at least 60 years old.2 We note an increase in articles dealing with succession, the monetization of the stake held by older advisers and practice-building entrepreneurs.
Trends in financial planning mirror those in the broader economy. The Wall Street Journal reports that 30 percent of America’s business owners are age 55 or older. Many are choosing to sell their companies to employees rather than to outside buyers.3
Internal succession as a trend may be traced to demographics. A “birth dearth” followed the baby boom, a drop in birth rates starting in 1964. With retirement looming, boomers are moving toward downsizing, de-cluttering, selling the big house. “Simplification” and “liquefaction” are watchwords. When boomers move to sell their toys and second homes with fewer buyers available, resale prices may stagnate or fall. What happens when boomer entrepreneurs want to cash out?
There are fewer buyers of enterprise coming up behind the boomer wave. Some willing buyers cannot get acquisition capital. Post-crash, sellers cannot command the price envisioned a few years ago. In an online article, the Mead Consulting Group warned, “The next generation of workers are very entrepreneurially focused themselves. They often want to start their own businesses rather than buy an existing one, even though the risk of failure is much greater. That means there will be fewer interested buyers for your business when you need them most.”4
Many financial advisers in the independent space do not want merely to sell out and ride into the sunset. They want to transition, stay involved, and keep contributing, while recognizing that Father Time also has an agenda.
In the wider business world, there is increased use of employee stock ownership plans (ESOPs) as a vehicle to transfer ownership to employees in an internal succession strategy. This leads to issues involving effective team building to assure that the next generation of entrepreneurial business-building and leadership talent is in place.
In the independent advisory space, about 54 percent of advisers are solo practitioners.5 Because an employee and advisory team must be in place to execute an internal succession strategy, we assume a growing trend of moving from solo or silo to an ensemble. Clients facing challenging life transitions love the wisdom that comes from gray-haired experience, the mastery of appreciative inquiry, empathetic counseling skills, and the ability to go beyond Money 101 into Life Planning 2.0. Nevertheless, when the client looks at the planner and asks, “When are you going to retire?” it’s time to think “team.”
Team Is the Theme
There is nothing new about the concept of teams within a service-oriented enterprise. With a transformation of solo and silo practices into ensemble formats, we will hear more about the synergism of client-centric teams.
Advisers will focus on three teams in addressing age wave challenges and opportunities: the in-house advisory and client support team, a team of outside experts identified within a concierge initiative, and a family team assembled to coordinate caregiving support for loved ones. Testimony to this trend, adviser coach John Bowen Jr. notes a shift by advisers from largely investment-centric in 2001 to primarily client-centric today. “Advisers are teaming up to get specific expertise,” he says, with 43 percent of advisers surveyed leveraging teams of outside experts to address client concerns beyond the financial.6
A succession team suggests continuity—manifestation of ongoing business and client service when an owner or other key persons leave the business, voluntarily or involuntarily. For broker-dealers and custodians, continuity means keeping managed assets on the books when advisers retire. For junior advisers it means keeping assets within the firm when older clients pass on. Conversations relating to the challenges of aging, health care, and special needs can provide the bridge between the senior advisers and the next generation, and by involving the intergenerational family, link younger advisers with the children of the older clients. The children are likely to be in their 40s and 50s, and they are prime prospects for financial planning services. Existing clients want to know that there will be a familiar team in place in coming years when the family needs them. One complaint heard from older clients about big institutions is ever-changing personnel—“Nobody knows me!”
In building a successful ensemble practice, advisers must have a strong operating agreement and a shared growth vision. Advisers joining the practice want a defined path to ownership. They, and remaining co-owners or successor owners, want to know how ownership interests will be valued, and how they will monetize their interest in case of disability, death, or other circumstance that results in their leaving the practice. They want to know how the firm is going to grow, their role in that growth, and how profits will be distributed. David Goad, president of Succession Planning Consultants, calls a well-crafted growth plan a growth incentive plan.
Because many solo practitioners and others tend to wing it, structured and disciplined continuity planning and team building is a new exercise. A coach will tell you that building an effective and goal-focused team is not easy. Maria C. Forbes, a Kolbe-certified team performance consultant, recognizes that people drive a business plan. We each are predisposed to contribute to organizational goals in a specific and impactful way. Beyond the traditional approach to team development, which uses a job description as a road map to success, there is more to the performance equation. Creating your succession requires the right blend of people and process.
The people part is achieved through analysis of three human performance values that are quantitative and qualitative. Forbes considers knowledge and experience, motivation and personality, and the specific and instinctive approach to challenge to be critical factors for selecting the right person for the role of successor. This role map, a powerful combination of values, defines the requirements for success. Forbes uses mind mapping to illustrate an individual’s path to ongoing success, charting an evolving view of how team members will progress from now into the future.
We are part of various teams, some ongoing and some pulled together for specific accomplishment. What is our role in each of the teams or groups with which we associate— family, community, spiritual, hobby, athletic pursuit, business, or profession? These questions relate to how we eventually leave our practices and maintain meaning and relevance until we depart the planet. They are the basis for meaningful conversations and planning strategies.
We can apply what we learn as part of our own age wave experiences to business owners as potential clients. The closely held business owner in your community has the same transitional challenges you do. We are on the verge of a golden age for continuity planning consultants.
- Tibergien, Mark. 2013. “The Human Capital Dilemma.” Investment Advisor (February).
- Chavagnon, Eliane. 2012. “The ‘Hidden’ Issue Behind an Aging Advisor Workforce.” WealthBriefing (July).
- Loten, Angus. 2013. “Founders Cash Out, but Do Workers Gain?” Wall Street Journal (April 18).
- Mead Consulting Group. “It’s Time to Get Ready to Sell.” www.meadconsultinggroup.com/showArticle2.php?id=3.
- Oechsli, Matt. 2011. “Pressing the Team Practice Advantage.” www.WealthManagement.com/practice-management/pressing-team-practice-advantage (September 1).
- Bowen, John J. Jr. 2013. “For Advisors, a Client-Centered Shift.” Financial Planning (March).