What I learned from four failed attempts to find a successor for my $1.5-billion AUA RIA

I urge any RIA who espouses or is open to espousing a passive investment strategy to be in touch with Adam Birenbaum at BAM Advisor Services to hear a very different — and considerably more productive — viewpoint on how to think about and approach successful succession planning. I would say more but, as a woman, I’m too busy nurturing a headache after reading this.

Hmm….let’s see, divorce, several failed attempts to build relationships that would allow succession. Women just don’t get it do they?

Really? Funny, because I know a lot of women advisers, women entreprenuers and risk takers. Wish you luck next time.

Dennis – I sympathize with the issues you have had trying to find a successor but, in truth, I am not surprised. As an executive search professional and someone who was also in the financial services business for the better part of 15 years, what happened to you was almost inevitable. In each of your 4 attempts you tried to make a successor out of someone who was available and handy. We have an old expression in the recruiting business, “Pop-Ups become Poop-outs”. From what you have said in this article there was no attempt to define in writing the qualifications of the proposed successor you were looking for or the deliverables that were expected from the individual who took this position. You simply tried to make a go if it with people you met or knew. When businesses have a need to fill a mission-critical position, they typically turn to a good executive search firm to help them define exactly the person they seek, to help them source, identify and evaluate the best talent available in the marketplace to fill that position, and then to help them hire that person on the most favorable basis possible. Unfortunately, good retained executive search is not part of the typical venacular when trying to find a successor for an RIA. I am trying to change that. Send me your email and I’ll send you some more information. Mitch@tpisearch.com

By the way, I thought of another good source for robust succession planning: Brian Lauzon of Advisor Assist. Check out this interesting interview recently posted: http://blogs.cfainstitute.org/investor/2013/02/19/positioning-your-firm-for-the-equity-bull-market-in-wealth-management/. His “practice versus business” assessments seem spot on to the conversation at hand.

Darn those flighty women, they screw up everything !!!

We are doing more M&A work and have been successful – so far. Except one client said “Sue me for your fee.” after they got their check. So we are.

Frankly, the succession situation is a mess. It is a whole other skill from running a shop. No one is prepared. Our clients are often their worst enemies. They undervalue their firms. They fall for silly promises e.g., the roll-up failures of the past.

But it has to be worked thru. We represent buyers and sellers and sometimes both on a transaction – fully disclosed, of course. It is critical that sellers maximize the value of theri lifetime investment to fund , now extended, retirements and family goals. It is equally important that buyers optimize return on the investment.

If a transaction is not set-up as win-win for both sides with similar incentives — something is wrong.

But it is hard, specialized work.

The question of succession planning is an interesting one. I know RIA owners who have said they plan to die with their boots on and not worry about ever selling the practice. That is a decent fallback option but my thought is to build a sustainable practice that would have value if I sold it 15+ years down the road.

It might take some work to sort through candidates who might not genuinely care about the clients who have entrusted their financial future to you or who don’t match your personality and work ethic.

I would keep an open eye for the right fit. I will guess that there is someone out there who appreciates the work you put into building your practice and who you are comfortable with.

William Stanert
Moondance Investment Advisors LLC

The idea that a good fit will come along — is old thinking — and can produce bad results or no results. Succession planning and execution needs to be made a line-item business project, like any other.

If people are serious about buying or selling they need to plan, fund and execute in a profesional and disciplined way. “Hope is not a strategy.”

Elmer,

Hope may not be a strategy, a nice cliche, but it’s a prerequisite.

Brooke

To all the ladies out there who think I am some sort of prehistoric creature I have no apology for my thoughts they are an opinion based on experience. If the characterization does not apply to you then why the snarky comments, did you read any further or did you just stop becuase you felt insulted? By the way 60% percent of our clients are women and as you can tell from my picture it is not becuase I look like Tom Cruise, so my prehistoric approach must be doing something right with some women.

Doubt a doctor, lawyer, engineer, pilot or financial advisor wants to be paid for hope. At least none I want to use.

First on your observation regarding women, I wish people would get over the idea that the expression of personal opinion is somehow inherently “sexist” or “racist” or whatever. People are different, and in this case one particular difference, present in some of your specific interactions, had an impact. I am not offended by you including that in your observations.

That said, you have taken the approach of looking for someone to take your captain’s chair. So far, no luck. Have you considered looking at it from a different direction; perhaps take your firm to another firm. I own a compliance consulting firm and have a lot of dicussions around succession planning. There are many firms out there looking to grow by acquisition. The basic model is that you could take your entire practice in a sort of 'pod’ underneath the 'mother ship’ of another RIA. You would continue to operate for some time as a separately identifiable business unit of XYZ Advisory. Other portfolio managers of XYZ would begin to work with you in managing your clients’ assets. This gets the managers familiar with your clients and your clients comfortable with the new firm. Over time you gradually step back further and further, until you are finally able to retire.

There are many ways to work out the compensation arrangments so that you and the 'mother ship’ firm are both protected and so that both benefit.

Just a thought you might want to consider. I hate to see the “toe tag” approach to succession planning. The clients are not well-served, your heirs are not well-served; no one wins in that situation.

good luck!

Lol like the toe-tag metaphor, smart and accurate, although we see more the “ ombie” approach — the firm that is mainly the “walking dead”. Hope that isn’t unkind!

What we are also seeing is all the Boomer owners rushing to the exits at the same time. Not pretty. Then apparently there is even more of a dearth in the age cohort that will buy and run these firms than demographers were thinking.

I never looked at myself as a dinosaur. Only as a gal lucky enough to have worked at ML, Reynolds and Bear Stearns at a time when “your word was your bond”. And as you said, chances are you have many more years to run your business, etc.

The women you’ve been dealing with unfortunately have lacked the entrepreneur spirit — but so have the men.

Entrepreneurs will seek you out to partner with if they know you’re look’n . Most I know are fairer than fair.

As I read your story, I thought about the perseverance you’ve had. It’s evident that you really care about your clients, and honestly, no one else will do so the way you do…. at least not for many years as they build their own relationships with them or others.

There are many ways to exit a business; I think I’ve come up with at least 15 ways. I don’t recommend the “drop dead at your desk way”. That will only hurt your business, clients and whoever in your family has to clean up the mess of owning a business, but not being ready to do so.

I didn’t understand why a Native American financial advisor… or two… couldn‘t be added to your firm and keep the legacy you started alive and kick’n. Junior advisors who you hire to help you build your firm, you mentor (and work less) and if you want later on, you create an ESOP.
And as someone mentioned, your firm can be sold.

Lots of other options then taking on a partner, who buys you out.

If you’re ever on the Peninsula, look me up. I’d love to reminisce. Just never call me a dinosaur and always call me a New Yorker.

Does dying with your boots on really hurt your clients anymore than a succession plan? In the end your clients are not dealing with you, the original broker they selected.

When a broker leaves a firm to start an RIA or to go to another firm, the clients are often shuttled to a broker they don’t know. Some stay, some don’t, but in the end all manage to quickly find another broker that is a good fit after a few consultations with the many fine brokers out there.

I think hope is a good thing, too. All the best doctors offer their clients hope while managing their expectations. Hope in many cases can make or break a situation, particularly a healing recovery.

Hope is just another way to stay positive.

As for dying and leaving the business to an unprepared family member. Well, it doesn’t take a genius IQ to find a business evaluator to sell the business or the client list.

Besides, maybe learning how to sell a business is a good life lesson for children or other relatives. Challenges are always a way to grow and learn. Embrace them.

As for the observation that all the “boomers are rushing for the exit at the same time.” So what?

The cream always rises to the top. Then, too, there is theory of “natural selection” You know how it goes: “A rabbit that runs faster than others may be more likely to escape from predators, and algae that are more efficient at extracting energy from sunlight will grow faster.”

The same applies to brokers heading for the exit…...only the fittest survive.

The best and brightest survive and thrive and the less fortunate, fall by the way side.

Not sure how folk wisdom sayings and aphorisms are relevant to the hard business realities of transitioning a professional practice, overseeing client’s wealth, beyond the few older original owners.

Maybe these kinds of practices cannot deliver professional services to clients beyond the effective working life of the few individuals who control the firms. In fact, since this is the first generation to face this test, we will have to see what happens.

Probably best to not be overly optimistic. We, in our M&A consulting role, have seen many more bad outcomes than good. Some shockingly destructive for clients, employees and families of the owners – and the owners themselves.

Elmer:

Do you see no value in folk wisdom? Is your consulting firms wisdom the only that has value?

I agree that old sayings and aphorisms only hold value when relevant to a particular situation, but they are always rooted in collective wisdom culled from collective life experiences. Take what you need and let go of the rest.

If the assets are held, as they should be, with a regulated business, there will be no disaster. The sky will not fall, If the business is a run in a legitimate manner from the getgo, whether or not the owner dies with his boots on or has a succession plan in place.

I am not against succession planning, if one wishes.

In fact I am forming a consulting firm to advise people how to create one, if they wish.

Some people need to leave that legacy for their egos. The business was their creation and they want it to live on after they are gone.

There are two questions about folks wisdom: 1. Do doctors use it anymore? 2. In professional matters no, not only is there no value but there may be harm. I know AA says “...leave the rest.” but for professional matters the standards are a lot higher – by law. However, folks wisdom is clearly the basis for most sales activities and media.

We have seen many instances of owners, clients, staff and inheritors hurt thru no succession planing rather than successful ones. But maybe we only hear about and see the hard cases.

Elmer:

Re: Folk wisdom, you ask: Do doctors use it anymore?

A quick google search will show you that yes they do. Particularly the cutting edge, most progressive doctors and all medical professionals.

Increasingly research into herbal extracts rooted in folk wisdom are being investigated for use as powerful extracts in pharmacological formulations.

In addition, they now routinely use leeches to suck up blood and pus in wounds. Also, their anticoagulant properties are used in limb re-attachment procedures.

Maggots are now used to eat away gangrene infections without harm to normal tissue.

These were all original only used in folk medicine.

http://usatoday30.usatoday.com/news/health/2004-07-07-leeches-maggots_x.htm

http://health.howstuffworks.com/medicine/modern-treatments/leeches-in-modern-medicine.htm

http://www.sciencebasedmedicine.org/yes-drug-companies-do-pay-attention-to-herbal-medicine/

Life requires multi-dimensional thinking. There is always more than one way to accomplish a good end.

As for harm. Life requires risk. There is nothing in life that is 100 percent harmless or risk free. Every action has the potential to bring good or harm, depending on many factors, including a succession plan poorly handled.

There is presently no legal requirement to have a succession plan.

And, as mentioned, if the assets are held appropriately with a regulated agency. There will be no disaster.

Inconvenience…..., yes. But no disaster.