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This article is the first installment in a multi-part series exploring the issues Jim Whiddon faced as he went through the process of selling his practice.
In 2012 at age 52, after almost three decades in financial services, I decided to sell my Dallas -based independent registered investment advisor (RIA), JWA Financial. Why would I trade in the peak earning years of my career after I successfully positioned my firm to take it to the next level? In a series of articles, I’ll explore a multi-faceted topic weighing on the minds of many advisors – succession planning.
I did not sell my firm because it was in trouble. We had healthy cash flow, and the stock market was at an all-time high. My firm had recently invested in a rebranding, including new logos and marketing materials, and built a new (and expensive) website. I had the perfect staff in place – the best I had ever assembled. The firm had not just survived the global financial crisis, but it was reaping the full benefit of the “leaner and meaner” financial positioning the crisis had necessitated.
Succession planning is one of the hottest subjects in our industry today. Across all channels of financial services, advisors who are 60 and older control more than $2.3 trillion in client assets, according to Cerulli Associates Inc. But as we often tell our clients, big decisions are about more than numbers. Determining the best next step for your career and your firm is a decision that should be made with your family, team and clients in mind.
I considered and researched many factors over a period of several years when creating my succession plan. Like many small business owners, my firm was the largest asset in my personal portfolio. It was a privately held, illiquid position. In this sense, I viewed the decision as a pure risk-or-reward equation that gave me the opportunity to liquefy and diversify my assets by merging into a larger firm. But this was far from the only reason to consider the opportunity. I felt that an analysis of strengths, weaknesses, opportunities and threats would help me organize my options and survey the landscape on a macro and micro level. This series will address these and other issues in depth, in the hopes that my insight benefits others in my position.
Several key threats kept me up at night: death or disability to me or another key person without a formalized succession plan, the continued burden of fulfilling multiple administrative roles and the ongoing challenges of finding and retaining good people. Beyond those, I considered five important challenges to our firm:
- What was our ability and willingness to withstand the next global financial crisis?
- How would we cope with additional regulatory legislation and the increasing complexity of regulation?
- How would the next generation of online competitors (sometimes called “robo-advisors”) affect us?
- Would there be a demographic tsunami of firms owned by baby boomers being sold over the next 15 years?
- How should we time a transaction for competitive reasons?
I came to believe that my small-size RIA would be facing greater and more robust competition, which would drive fees lower, make it more difficult to compete for talent and cause a reduction in enterprise value moving forward.
Finally, I assessed the opportunities that would need to be available if we were going to find the right prospective merger. As a fiduciary, the primary concern was to make sure a partner firm shared our investment and wealth-management philosophy. We wanted a relationship that would be mutually beneficial. I wanted to expand our institutional intelligence by partnering with a firm that had seasoned advisors with complementary skills. I wanted greater financial stability and the advantages inherent in greater economies of scale. Finally, I wanted access to a broader product and service offering for our clients and to tie into additional areas of expertise – such as tax planning – that our firm lacked the resources to offer.
Each advisory practice and, indeed, each professional endeavor presents its own challenges and opportunities when it comes to deciding what’s next. Over the next several weeks, I will share more details of the difficult succession ideas I wrestled with, how I eventually decided to merge with another firm and how we helped clients across the country feel secure about their financial futures.
I owed it to myself, my family, my team and our clients to investigate all available options and to seek the advantages of merging with another firm. Even if you decide not to sell, the same investigation and decision-making would be a valuable due-diligence process for any firm. I encourage you to engage in the process as you read my series to see the implications for your situation.
James Whiddon, CFP, MSFS is a wealth advisor with Buckingham, an independent member of the BAM ALLIANCE. Buckingham provides wealth management for individuals, businesses, trusts, not-for-profits and retirement plans. He is the author of two books: Wealth WIthout Worry and The Investing Revolutionaries.
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