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Fidelity Bundles Advyzon With eMoney And Wealthscape In Its New RIA “Tech Stack” (And More Of The Latest In Financial #AdvisorTech – September 2024)

September 2, 2024 07:01 am 0 Comments CATEGORY: Technology & Advisor FinTech

Welcome to the September 2024 issue of the Latest News in Financial #AdvisorTech – where we look at the big news, announcements, and underlying trends and developments that are emerging in the world of technology solutions for financial advisors!

This month's edition kicks off with the news that Fidelity has announced a new bundled technology offering for advisors, including its own Wealthscape brokerage and eMoney financial planning software, alongside Advyzon's portfolio management and performance reporting platform – which is rather surprising given that Wealthscape itself was once advertised as an "all-in-one" solution that could replace third party portfolio management software like Advyzon, and suggests that Fidelity's aspirations for (and massive investment into) Wealthscape as a core software offering that would make its custodial platform 'stickier' for advisors and their assets may have been upended by advisors' preferences to use independent standalone software instead?

From there, the latest highlights also feature a number of other interesting advisor technology announcements, including:

GeoWealth has announced an $18 million investment from BlackRock to enhance GeoWealth's capabilities for offering customized investment models (such as those provided by BlackRock itself) – which raises questions about whether BlackRock's ownership stake in one of its own distribution channels will cause conflicts if BlackRock products are favored on the platform at the expense of other asset managers, or if BlackRock is content to invest passively in GeoWealth (since as long as BlackRock sees some share of the assets on GeoWealth's platform, it will benefit as long as the TAMP continues to grow)?
Estate planning software provider Vanilla has announced an estimated $20 million capital raise as it builds out its estate document preparation service on top of its existing estate analysis tools, reflecting investors' enthusiasm for the growth potential for software tools that can also be packaged as a service (and priced accordingly higher) – although the question remains whether there will actually be enough demand for estate planning documents to sustain the service, given that clients only update their estate documents every 5–10 years (at most)?
Hearsay, the social media marketing and compliance platform for financial professionals, has announced that it is being sold to Yext for $125 million, 11 years after being valued at $171 million – highlighting how even becoming a largely successful AdvisorTech provider (as Hearsay's 260,000 users and $60 million in revenue attest) wasn't necessarily enough to live up to the expectations of everyone who expected social media to be the dominant channel for advisor marketing.

Read the analysis about these announcements in this month’s column, and a discussion of more trends in advisor technology, including:

Wealthtender, a platform for gathering client reviews and testimonials, has partnered with the AI-powered compliance provider Hadrius to allow advisors to scan all testimonials collected through Wealthtender for compliance with the SEC's Marketing Rule, and flag potential violations for human review – which represents a way to harness AI for a function that it truly does well in reading large amounts of text and flagging passages with specific meanings and implications, although given the relative infrequency that testimonials actually come in, there might not be that much time savings.
Morgan Stanley has become one of the first financial services firms to launch its own internal AI meeting notes tool, which highlights the unique opportunity that mega-firms like Morgan Stanley have (with the reams of internal data at their disposal) to build their own in-house AI tools without the potential for exposing client data to a third-party vendor.

And be certain to read to the end, where we have provided an update to our popular "Financial AdvisorTech Solutions Map" (and also added the changes to our AdvisorTech Directory) as well!

*And for #AdvisorTech companies who want to submit their tech announcements for consideration in future issues, please submit to [email protected]!

Weekend Reading For Financial Planners (August 31–September 1)

August 30, 2024 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" – this week's edition kicks off with the news that a recent benchmarking study suggests that a number of RIAs are looking to move 'upmarket' and work with wealthier clients by expanding their service menu to include family office services, investment banking, and/or trust services. Nonetheless, given that adding services requires an investment on the part of the firm (often in the form of increased staffing to offer high-touch services and add needed expertise), firms appear to be analyzing the costs and benefits of offering these services in-house versus adding value to clients by referring them to trusted professionals in these areas to ensure that they can truly scale profitably (and not 'just' grow in terms of assets).

Also in industry news this week:

While many pre-retirees feel unprepared for retirement, longitudinal survey data suggest most will end up living a comfortable retirement, suggesting a role for financial advisors to show them projections of what their retirement could actually look like
According to a recent survey, high-net-worth individuals are largely satisfied with their financial advisors, though some respondents indicated that communication with a client's other advisors (e.g., attorney and accountant) could be improved

From there, we have several articles on investment planning:

How the "60/40" portfolio has historically offered a strong 'win rate' of positive returns for long-term investors, even when adjusted for inflation
The factors that could drive the future correlation between stock and bond returns amidst concern that the "60/40" portfolio has lost some of its diversification value
Why private investments could potentially play a valuable diversifying role in an 'alternative' 60/40 portfolio

We also have a number of articles on advisor marketing:

3 ways advisors can adjust their websites to convert more referrals into clients
Best practices for financial advisors looking to win referrals from fellow advisors, including the importance of demonstrating emotional intelligence
Recent research indicates that client referrals are 'contagious', with previously referred clients more likely to make referrals themselves

We wrap up with 3 final articles, all about thank-you notes:

Why sending thank-you notes throughout the year (and not just for major occasions) can offer benefits for both the writer and the recipient
An argument against written thank-you notes and alternative options to show gratitude
A 4-sentence structure for writing thoughtful (and efficient) thank-you notes

Enjoy the 'light' reading!

Why Held-Away Asset Management Technology Is Being Scrutinized By State Regulators (And How Advisors Can Compliantly Manage Clients’ 401(k) Assets)

August 28, 2024 07:03 am 0 Comments CATEGORY: Regulation & Compliance

Historically, advisors haven't had many avenues to manage clients' 401(k) plan accounts, since unlike traditional custodial investment accounts, advisors generally lack discretionary trading authority in employer-sponsored retirement plans. Which wasn't necessarily a big issue back when most clients hired advisors after they had already retired and were able to roll over their employer plans into an IRA managed by the advisor; but as advisors have increasingly taken on working-age clients (and the 401(k) plan itself has taken on greater importance in retirement planning), the friction between 401(k) and non-401(k) plan assets has grown into a bigger issue from an operational and compliance standpoint.

For advisors who want to advise on clients' 401(k) plan assets but who can't manage them directly, there have generally been 2 options. First, the advisor can periodically review the investment statements issued by the 401(k) plan against the client's goals and risk tolerance and make recommendations that the client must then carry out on their own – which can prove frustrating for both the advisor and the client as it involves making multiple requests for information and then executing the trade, and if the client is busy or forgetful, there's the risk that the recommended trades will never actually be carried out. Alternatively, some advisors have instead opted to collect clients' login information so they can execute the trades in their clients' accounts themselves –presenting numerous data security and compliance issues for the advisor (and can lead to the advisor being considered to have custody over client assets).

In this environment, several data aggregation tools, with Pontera being the most prominent, have emerged to enable advisors to more efficiently and securely manage their clients' 401(k) plan accounts by giving the advisor the ability to view and trade in the 401(k) account. Which would seem to be a preferable solution to the old method of logging in with the client's credentials, since the advisor doesn't need to collect the client's login information (as it is entered by the client themselves and stored securely without giving the advisors access to the credentials), and can allow advisors to more efficiently serve clients with 401(k) plan assets (including those who might not have enough non-401(k) plan assets to meet the advisor's minimums).

However, regulators in several states, including Washington and Missouri, have recently begun to scrutinize advisors' use of Pontera and similar technology, citing concerns that recommending clients to share their login credentials with third-party technology may constitute "dishonest and unethical" conduct by potentially violating clients' user agreements with their 401(k) platforms. On the surface, this doesn't necessarily make sense, because many 401(k) plan platforms don't in fact ban such third-party credential sharing. But at the same time, regulators may have some valid concerns, since the amount of client data that can be seen and collected by the technology often exceeds what is actually needed to view and trade in clients' 401(k) accounts, while their ability to manage clients' investments outside of the traditional (and well regulated) custodial framework might also have spurred regulators to find a way to 'pump the brakes' until they can more carefully determine what is or is not an appropriate use of data aggregation technology.

And yet the fact remains that technology like Pontera may still be preferable to the alternatives that exist for advisors to advise on and manage clients' 401(k) assets (e.g., making recommendations for the clients to execute on their own or collecting client login credentials), while it also doesn't make sense from a fiduciary standpoint to simply leave 401(k) assets out of the financial planning conversation entirely. And so, despite the current regulatory friction around held-away asset management, the most sensible path forward does involve some role for technology to manage clients' 401(k) accounts – albeit with more communication between technology providers, financial institutions, regulators, and advisors to build a system that addresses the concerns of each.

In the short term, however, it's uncertain whether states like Washington and Missouri will remain the outliers in scrutinizing Pontera and similar technology or whether other states (or the SEC) will share those issues. Which makes it important for advisors considering whether to use the technology to understand where their own state regulators stand and for those who use it already to explain to their regulators how it allows them to better holistically manage their clients' assets without resorting to collecting client login credentials. Since ultimately, the advisors who use it every day are best positioned to show how held-away asset management technology can truly be used in the client's best interests!

#FASuccess Ep 400: Sizing Up Versus Scaling Up To Build An Enduring Advisory Business, With Mark Tibergien

August 27, 2024 07:02 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome everyone! Welcome to the 400th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Mark Tibergien. Mark is the former CEO of Pershing Advisor Solutions, a former Principal with Moss Adams Consulting, and is a longtime practice management consultant and thought leader in the financial advisory industry.

What's unique about Mark, though, is how, over the course of a 50-year career in financial services, he has seen firsthand the evolution of the financial advice industry, and has measured, tracked, and through his expertise has helped to define the best practices for advisory firms looking to not just "size up" but truly "scale up" to build enduring advisory businesses.

In this episode, we talk in-depth about how Mark views the difference between simply growing in size versus truly gaining scale as an advisory firm (with scale only occurring when revenues are growing faster than expenses, not just growing in line with rising asset or client headcount growth), why Mark thinks advisory firms should aim for a 30%–35% operating margin, with a higher profit margin potentially indicating a lack of reinvestment in the business and a lower margin implying some problem around pricing, client or service mix, or team productivity, and how Mark sees the differences among advisory practices (which revolve around the founder), versus businesses (which start to add employees and build processes and procedures for them to follow), and advisory enterprises (which have professional management, career paths, and organization-wide measures of accountability).

We also talk about Mark's perspective on the ongoing trend of industry consolidation (that was foretold decades ago and now seems to be coming to fruition), including the 3 types of firms looking to buy RIAs: financial buyers looking to make a return over 5–7 years, tactical buyers seeking to purchase a complementary business, and strategic buyers aiming to create a large branded enterprise, how Mark thinks, despite some predictions to the contrary, that smaller advisory firms can continue to thrive amidst consolidation within the industry by being leaders in their local area or by serving a specific client type (akin to how solo accounting and law practices continue to operate despite their respective industries' immense consolidation of national law and big-4 accounting firms), and why Mark believes that relying on client referrals will be insufficient for firms truly looking to scale, as top-growing firms tend to market far more proactively, with clear branding and positioning in their particular industry segment.

And be certain to listen to the end, where Mark shares why he doesn't think there's anything wrong with the AUM model but he does believe that advisory firms thinking in only terms of assets and basis points may be camouflaging some of their own problems (even from themselves), why Mark believes that especially as an advisory business grows and adds headcount beyond its founders, it becomes increasingly important for firm owners to proactively create a succession plan to ensure their firm will continue to operate according to their vision when they are no longer in the picture, and why Mark thinks it's important for advisors to define what success means to them, not just in terms of business size and personal income, but also on the impact they'll have on their family, community, and the profession as a whole… which can ultimately change the business decisions and trade-offs they make about whether and how they build and scale their firms.

So, whether you're interested in learning about building an enduring advisory business by "scaling up" rather than just "sizing up", the changes that come with being an advisory practice, business, or enterprise, or recent trends in RIA consolidation and what it means for smaller firms, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Mark Tibergien.

8-Step “Agile Change” Framework For Smaller Firms To Communicate And Implement Organizational Change

August 26, 2024 07:04 am 0 Comments CATEGORY: Practice Management

For most of its history, the financial advice industry has been very slow to change. Over the last 50 years, even the most substantial changes to occur – such as the movement away from commissions and towards fee-based compensation, and the shift from an investment-centric approach to more holistic financial planning – have taken place over decades and, in many cases, are still ongoing. In the last few years, however, the pace of change seems to have quickened considerably, as the technology landscape has mushroomed, and private equity funding has fueled an unprecedented surge of mergers and acquisitions that has reshaped the competitive landscape.

For many business leaders, the standard playbook for dealing with changes such as those the advisory industry faces today has been based on John Kotter's change framework, which supports organizational change and alignment with a strategic vision that ultimately helps the business move forward. But while Kotter's model may work well for larger firms with ample resources and people available to enact change, it can be less effective for smaller organizations with fewer people available to create coalitions for change (and where the power to block change might even be concentrated among one or a handful of executives or owners).

Therefore, those at smaller firms who want to promote change may benefit from a framework based on an "Agile Change" model adapted for smaller firms. In this model, the groundwork for change is first established by assessing the situation (e.g., reviewing external factors like best practices and services or technology solutions available, as well as internal factors like the current pain points employees have with existing processes or technology), then using that information to communicate the importance of change to create a sense of urgency and build buy-in from the ground-level stakeholders who will be affected by the change. Additionally, those promoting change can be very clear about what the process will entail and how it will be implemented (with the caveat that the plan needs to be flexible to allow for change as conditions evolve).

Ideally, the result of all this groundwork is that when explaining the change process to higher-level management and firm leadership, there will already be solid evidence of the support for the change within the organization and the positive impact it can (or has already served to) create, making it more likely to achieve crucial buy-in from the top needed to go through with the change. Once the change process is implemented, it's critical to track the progress and assess the results so that refinements to adjust and improve the process can be made and, in the best case, can enhance buy-in even more. Eventually, the change becomes part of the normal business process to the extent that it is baked into job expectations with negative consequences for employees who don't buy into the change, setting the stage to begin the next iteration of change as the firm grows and evolves.

The key point is that even as situations develop rapidly and necessitate constant changes – both large and small – the process for dealing with these changes can be systematized in a way that ensures that the people who need to buy into the change, from the bottom to the top of the organization, actually do so. Although it may take time to lay the groundwork and build support for change before actually trying to implement it, these steps can be crucial to ensure that the change is accepted even among team members who may be less eager to change how they work. Which will ultimately make it easier for the firm to make the changes needed to adapt (and succeed!) in today's rapidly changing advisory industry!

Weekend Reading For Financial Planners (August 24-25)

August 23, 2024 02:00 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "Weekend Reading For Financial Planners" - this week's edition kicks off with the news that a new study indicates that while financial advisory firms are largely satisfied with their tech stacks, they take a range of approaches to applying tech: from "innovators" that invest in tech to differentiate themselves from their competition and to enhance the client experience to "operators" that invest in technology largely to improve operations and internal efficiency to firms that say they don't prioritize technology or use it effectively. The survey found that most firms fall into the middle category, utilizing tech in categories that provide an assessed high return on investment (e.g., financial planning, CRM, portfolio management), while taking a more tailored approach to selecting tech in other categories.

Also in industry news this week:

A Federal judge struck down the Federal Trade Commission's ban on non-compete agreements before it could go into effect, though potential appeals mean the battle over the regulation might not be over
A U.S. District Court this week ruled that Missouri's rules that targeted investment advice based on factors other than return maximization was unconstitutional and preempted by Federal law, striking a blow against state efforts to regulate the activities of SEC-registered advisers

From there, we have several articles on retirement:

7 factors that can help a client choose the best retirement location for their needs, from maintaining social ties to having adequate medical care available nearby
Considerations for clients who are considering moving abroad for their retirement (and their advisors), including the potential implications for the client's taxes and investments
How advisors can help clients determine the most tax-friendly states for retirement, which goes well beyond the 'headline' income tax rate to also include each state's unique treatment of different retirement income streams

We also have a number of articles on practice management:

How advisory firm owners can consider the benefits and tradeoffs of a hybrid work environment to create a structure that best meets the needs of both the firm and its employees
The keys to holding effective team-building exercises and 17 potential options, from in-person retreats to volunteer days
Why creating and reevaluating a collaboration plan is a crucial part of maintaining an effective hybrid work policy

We wrap up with 3 final articles, all about pets and finances:

With the average annual costs of caring for a pet reaching $4,800, these expenses can represent a major (and often unexpected) line item on a client's budget
The pros and cons of pet insurance, from the ability to defray veterinary bills that can add up to thousands of dollars to the sometimes-complicated maze of coverage options and exclusions
How a "pet directive" or pet trust within a client's estate plan can help ensure their pet will be well taken care of after the client's death

Enjoy the 'light' reading!

Kitces & Carl Ep 145: Explaining The Value Of Financial (Life) Planning By Unlocking The Emotional Job To Be Done

August 22, 2024 07:01 am 0 Comments CATEGORY: Kitces & Carl Podcast

As advisory firm websites have become crucial to the prospecting pipeline, displaying fees can present a delicate challenge for advisors. On the one hand, displaying fees can help a client determine whether an advisor will fit into their budget and may build trust when an advisor demonstrates transparency by explaining how their fee applies to their value proposition; on the other hand, even with a clear explanation, prospects may find it difficult to understand exactly how the value of an advicer aligns with their fees. The unique dynamic of presenting fees to clients can be heightened when an advisor offers life planning, which may involve multiple meetings to truly understand the prospect's situation before the advisor even presents the fee for an in-depth plan. Due to the in-depth nature of this sort of planning, fees may be quite high – so spending several meetings on a prospect who balks at that amount is 'expensive', yet presenting that same fee too early may cause clients to balk because they don't see the fee in context.

In our 145th episode of Kitces and Carl, Michael Kitces and client communication expert Carl Richards discuss how advisors can navigate the lines of presenting fees early in the process to ensure that prospects can afford their plan while still explaining their value and unique planning strategy to engage prospects who fit their specific target client persona.

As a starting point, providing a fee minimum on their website lets advisors communicate the lowest amount that would still be economically viable for them (and explaining that the fee may change based on complexity). This lets advisors give prospects a contextual starting point, which can minimize the risk of 'sticker shock' when a fee is presented and ensures that the prospect can (likely) at least afford the advisor's minimum fee.

Another key to sell life planning effectively is to target prospects who are more likely to seek this type of comprehensive planning in the first place. Advisors can help prospects who may not even recognize life planning as a solution to their financial problem by framing its value in terms of the 'emotional job' being done – for example, advisors might describe how they help dentists plan for retirement by encouraging them to find purpose beyond their practice and helping them to "unchain themselves from their chair".

Ultimately, the key point is that while engaging prospects with more holistic financial advice strategies – and their potentially higher fees – can pose a challenge, there are several steps that can provide context for potential clients and communicate the problems being solved. At the same time, advisors may find ways to narrow their niche further to make it even more likely that the clients who engage with them in the first place are the ones who seek the specific financial advice they offer!

Utilizing Swap Powers In Irrevocable Trusts To Add Flexibility And Income Tax Efficiency

August 21, 2024 07:01 am 0 Comments CATEGORY: Estate Planning

Irrevocable trusts lie at the heart of a variety of estate planning strategies, as gifts to irrevocable trusts can allow for the transfer of assets outside of an owner’s estate for estate tax purposes with more structure than an outright gift. The downside, however, is that irrevocable trusts are "irrevocable" and can't easily be undone; in moving assets to the trust, the original owner gives up their authority over the assets, with the trustee taking over the management and distribution of the assets according to the trust's instructions. Sometimes, though, the original owner may want to take a 'mulligan' when the assets inside the trust would be more advantageous back inside their estate. Including the power of substitution when establishing the irrevocable trust can provide the opportunity to redo the funding of the trust, without jeopardizing the estate tax benefits that the trust conveys.

In this guest post, Anna Pfaehler, CFP, AEP, a Partner and Wealth Advisor at Constellation Wealth Advisors, discusses how "swap powers" – the ability to exchange assets in an irrevocable trust with other assets of equivalent value – can be used to add flexibility and income tax efficiency to an irrevocable trust.

At a high level, swap powers are often included in trusts because, under the Internal Revenue Code, they turn an irrevocable trust into a Grantor Trust where any income generated by the trust assets is taxed to the grantor (i.e., the assets' original owner). This can be advantageous given the generally higher tax rates imposed on trusts compared to individuals. If the trust is drafted as an Intentionally Defective Grantor Trust (IDGT), the trust's assets are also considered outside of the grantor's estate for estate tax purposes, giving the grantor the best of both worlds when it comes to income and estate taxation.

However, while grantors often include swap powers in their trust provisions to convey Grantor Trust status, many never actually use the swap power for its nominal purpose of exchanging assets within the trust with others of equivalent value. But swap powers can create planning opportunities to take advantage of the differences between types of assets and to optimize the trust's balance sheet as circumstances shift over time.

For example, if an asset within an irrevocable trust has substantially grown in value, that asset will not receive a step-up in basis when the grantor passes away if it remains in the trust, resulting in significant capital gains tax if it is sold later. But if the grantor uses a swap power to exchange the asset for something equivalent in value but with a higher cost basis, they can maximize their benefit from the step-up in basis by keeping the lowest-basis assets on their own balance sheet and the highest-basis assets in the trust. Swap powers can also be used to meet liquidity needs by exchanging more liquid assets in the trust, or to move assets with higher expected growth into the trust to shield their future growth from estate taxation.

The key point is that life goes on even after an irrevocable trust is drafted and funded, and shifting circumstances after the fact can leave grantors wishing for a do-over. And although swap powers won't necessarily solve every potential issue with the irrevocable trust that could arise after the fact – since there needs to actually be property of equivalent value that can be swapped into the trust to use them – it does at least create the flexibility to optimize the trust for whatever the situation at hand may be. Ultimately, advisors can help clients navigate their changing circumstances by recognizing opportunities to re-optimize their financial situation and by making the adjustments (such as a well-executed asset swap) that increase the chances of a better outcome as the client's future unfolds!

#FASuccess Ep 399: Maintaining Company Culture More Virtually (When Scaling Past $3B AUM With 10 Office Locations), With Kelli Kiemle

August 20, 2024 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome everyone! Welcome to the 399th episode of the Financial Advisor Success Podcast!

My guest on today's podcast is Kelli Kiemle. Kelli is the Managing Director of Growth and Client Experience of Halbert Hargrove, an RIA based in Long Beach, California, that oversees $3.1 billion in assets under management for 750 client households.

What's unique about Kelli, though, is how she leads efforts at Halbert Hargrove to maintain the firm's 4 core values and build a strong culture, even and especially as their team has grown to 50 employees and, with ongoing expansion, is now situated across 10 offices in the western United States (which means even their in-person offices are 'remote' and 'virtual' relative to the leadership team in the firm's main office headquarters).

In this episode, we talk in-depth about how Kelli has worked to develop programs at Halbert Hargrove to maintain communication and strong relationships across the firm and its disparate offices, including by holding twice annual in-person meetings at Halbert Hargrove's headquarters both to discuss firm business and to provide opportunities for more informal social interaction amongst the firm's otherwise-dispersed staff, how Kelli uses weekly, company-wide all-hands meetings first thing every Monday morning to review key company metrics to increase accountability, and how Kelli established a mandatory, 2-year formal mentorship program for all new hires to help them get better acclimated to the firm's culture, and to have an outlet to whom they can ask question and seek advice as they grow into their role.

We also talk about how Kelli has created initiatives that help solidify Halbert Hargrove's core values of being fearless, constantly improving, having fun, and giving back, including by having employees share not only their "Gladiator Stories" of fearlessly going to bat for their clients, but also their "Goofs That Give Us Guidance" to reflect on mistakes that were made to align to their core value of constantly improving, how Kelli has aligned her firm's employee benefits with its core values as well, including by funding educational opportunities for employees, providing a match for employee charitable donations, and offering child care subsidies, and why Kelli finds that her firm's policy of offering what it calls unlimited 'responsible' vacation time doesn't lead to employees taking too much time off, but instead ironically still requires her to encourage staff to take more time off to avoid potential burnout.

And be certain to listen to the end, where Kelli shares how she has helped increase Halbert Hargrove's AUM over the $3 billion mark in part by leveraging a public relations firm as well as local search engine optimization to attract new prospects and lift their organic growth rate, how Kelli brought on a sales coach to help her firm's existing advisors get comfortable trying to close more clients (overcoming some initial skepticism about how a fiduciary firm could ever have "sales training"), and why Kelli decided against pursuing the advisor track at her own firm, instead carving out a role focused on growth and client experience that fit her strengths in creating and managing complex firm-wide workflows and juggling many tasks at once.

So, whether you're interested in learning about maintaining a strong firm culture when offices are spread across the country, aligning company benefits to match those core values, or using third-party marketing and sales coaching firms to drive client growth, then we hope you enjoy this episode of the Financial Advisor Success podcast, with Kelli Kiemle.

Succeed At Succession Planning: A 4-Step Playbook For Firm Ownership Transition

August 19, 2024 07:04 am 0 Comments CATEGORY: Practice Management

Founding owners of financial advisory firms often spend much of their time focusing on the short-term aspects of running their business, from providing high-quality client service to pursuing client growth. Which means that longer-term projects, such as creating a succession plan to have in place for the firm when the owner retires, may tend to get put on the back burner. And while some founders might assume that finding a successor is similar to filling a job vacancy, in reality, succession planning involves long-term preparation – not just by the firm owner but also by the firm's successors – to provide a seamless transition of knowledge, skills, and culture to ensure that there is continuity of care for clients and the realization of value for owners.

As a starting point, the succession planning process can begin with creating a clear vision statement that addresses what the firm does, why it exists, what its goals are, and how to measure them, which allows the founder and their successor(s) to create a shared language for the future and a clear path forward. A good vision statement will contain several elements, including a concise summary of the firm’s core purpose, specific components that help clarify the overriding statement (e.g., how the firm defines a deeper level of service), measurable elements (e.g., metrics like revenue, profit, impact, clients, or team size), and a timeline for when the goals should be achieved.

Next, the founder and their successor(s) can work together to create a structured process to guide the operational transition between Generation 1 (G1) and Generation 2 (G2). Key components of this transition include client service oversight, sales oversight, strategy leadership, and financial management. And because discussing these topics can become emotionally charged, particularly when there are differing views, open dialogue between G1 and G2 is required to find alignment and create agreements that support an effective transition.

After creating a transition strategy, determining the value of the practice and the payment structure that G2 will take on is a crucial next step, because it's important for the value to fairly represent what the company would be worth to an outside buyer while recognizing that the purchase aligns with the founder's vision and continuity goals. Because there is no single 'right' price, structure, or financing mechanism for every firm, getting clear on G1's financial goals, G2's ability to finance the deal, and the value of the firm (perhaps with the assistance of an external valuation service) can help ensure that all parties are clear on what the succession will look like and whether it meets their financial needs and risk tolerance.

Finally, combining the founder's vision, strategy, and economics along with a decision-making process and cadenced schedule of succession check-ins (to foster regular and open communication between G1 and G2) into a written plan that can be updated over time will help ensure that all parties are on the same page when it comes to the structure and timeline of the succession.

Ultimately, the key point is that just as a financial plan helps ensure a client's near- and long-term goals are met, an effective succession plan can increase the chances that a founding firm owner will reap the financial benefits of selling their firm to the next generation and that their firm will continue to thrive in accordance with their vision for years to come!