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As a former advisor and someone who spent three decades in the financial services industry, I naturally enjoy talking shop with other financial advisors. Nowadays, as a practice management consultant, I am less keen on the Sharpe ratio, sequence of returns, gifting strategy and the like, and more engrossed in the intricacies, joys and challenges of running an advisory firm.
Recently, I sat down for coffee with the CEO of a firm with well over $3 billion of assets under management to, you guessed it, talk shop. When you picture a CEO of a firm that size, what do you imagine? A seasoned industry veteran in his (yes, they are usually male) mid- to late-60s with a big personality? Me, too.
But not this CEO.
He is a 40-something, second-generation owner-executive of the firm. In fact, the two founders of the firm are no longer in the picture. They have retired.
I was intrigued and asked him if he would be willing to share with me how they managed to pull off a successful internal succession plan – and continue to thrive and find success as a preeminent wealth management firm in the Seattle area. Fortunately, he graciously accepted my invitation and agreed to meet with me for coffee.
In his view, there were three things that the two founders did right that led to a successful internal succession.
- Verbalizing their intent to build an enduring business
- Relinquishing client relationships early
- Having people around to hold them accountable
Verbalizing the intent to build an enduring business
From early on, the founders made sure that everyone – clients and employees alike – knew of their intention to build an enduring advisory business. They weren’t going to leave the firm’s future to chance or go about it in a haphazard manner. From the get-go, they were committed to internal succession. They were not entertaining several succession options, or interested in keeping their options open. Clearly, there is power in articulating and committing to one’s intent, building a business around it and letting your team know that a successor will be chosen from among them.
Relinquishing client relationships early
The founders didn’t only verbalize their succession plan, they enacted it with immaculate precision. As soon as it was practical to do so, they made a transition from client-advisory roles to executive roles. They gradually assigned their clients to other advisors. They did this so that client loyalty would be to the firm, not to the founders. They wanted to mitigate business risk by ensuring that client stickiness wasn't up to the founders. To enable such transition, they were not afraid to hire people who were smarter than they were or hand over client relationships to these new hires.
Having people around to hold them accountable
Finally, the founders established an outside board of directors. The paid board was effective in providing “adult supervision” to the founders and holding them accountable to their commitment to building an enduring wealth management business. The founders were at times compelled to manage the firm strategically and rationally with discipline even when tempting but unsound opportunities arose, and couldn’t deviate off course simply because they could. In particular, they couldn’t change their minds on a whim about their commitment to the internal succession plan when the going got tough.
All this sounds simple, but it isn’t easy. If it were, well, everyone would be doing it. Ric Edelman wrote in an article, "The key to building a successful practice is simple: hire great people, make sure they understand the firm's mission, give them the tools they need to succeed. Then get out of the way. That's it."
So how did the founders manage to get out of the way? Understandably, they did (and still do) possess egos and big personalities. That’s how they built such a successful business in the first place. But they were also humble enough to get out their own way for the sake of the firm.
Today, the firm is among the largest and most respected advisory firms in the Seattle area with well over $3 billion in assets under management with dozens of employees and many (young) partners – a “super ensemble.” This is not far from what the partners envisioned when they founded their firm and committed to an internal succession plan, leaving a legacy of an enduring, generational advisory firm.
Hoon Kang, CPA, CFP®, ChFC, CLU is a practice management consultant with Elliott Bay Advisors. His practice focuses on helping founder-centric advisory firms transform from practices to enduring businesses with legitimate enterprise values. His articles have appeared on AICPA PFP Planner, Leimberg Information Services and Journal of Financial Service Professionals. He can be reached at [email protected].
Read more articles by Hoon Kang
Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
