PRACTICE MANAGEMENT

Stay or Break Away? A Planner’s and Advisory Owner’s Guide to the Big Question

By Jody Jacobson

“Stay or break away?” This question—stay with your current firm or break away to build something on your own—has broader implications now than ever before for planners and firm owners alike. The aspirational model of future firm ownership for younger planners through organic growth and succession is changing.

While the trend of financial planners leaving small to large advisories and institutions to establish independent practices is not new, the context for decision-making has become more complex as the industry has matured. The emergence of large “aggregator” firms designed to acquire successful smaller independent firms should raise new questions for planners considering minority ownership and owners considering the promises made by these firms versus the realities.

Because advisors and owners often seek decision-making guidance in confidence from external coaches and consultants like me, succession-focused firm owners often do not realize the degree to which this question is on the minds of the advisors they’ve been grooming and banking on as future minority owners. 

Why Do Advisors Choose to Stay and Buy In?

Some of the most common and obvious reasons advisors cite for staying include:

• Financial security and stability of a paycheck
• Mentorship and support of a team
• Compliance and regulatory support 
• Psychological comfort due to the reduced risk compared to entrepreneurship
• Not having to do their own marketing

Logical and clear, yes. The reasons for breaking away, however, are not all as commonly understood.

Why Do Advisors Consider Breaking Away?

Again, the most often-cited and assumed reasons for breaking away are obvious: 

• Independence and control over the direction of the firm
• Potential for higher earnings 
• Flexibility in selecting ideal clients 
• Time to cultivate stronger client relationships 
• Career and personal growth
• Not having to supervise a team

These, however, are just the noticeable tip of a deeper iceberg where the real leverage points for decision-making reside.

What Are Advisors Questioning Behind Closed Doors?

Many of the planners I’ve worked with on this issue have been in the industry for 10-plus years, some starting at their current firms as young interns. Now, they find themselves at the threshold of minority ownership. Three of top concerns expressed are:

1. Will I get the say I want in shaping the future direction of the firm, or just a lot more responsibility without any real authority? Will I feel duped and disappointed? Women, in particular, fear becoming their firm’s de facto HR department, with more expectations to manage people and less time to bring in new clients and advance.
2. What happens if I turn down ownership? Will I have to leave? Will I lose respect?
3. What happens if owners sell a large portion of shares to an aggregator firm? Those who keep an eye on the macroeconomics of the advisory space wisely question potentially transforming the private firm into a corporate satellite, dramatically reducing or eliminating the possibility for future ownership. 

Many firm owners are not aware their key next generation of leaders feel this way. Not unique to the advisory space, most concerns expressed by these next-generation leaders reflect a phenomenon known as founders’ syndrome, when firm founders or current majority owners are not ready or willing to let go of control. While this often is fueled by a positive concern for the long-term success of the firm, this behavior may unintentionally stifle new ideas and growth. 

In part, the prevalence of this phenomenon in advisories may be due to a lack of awareness of the human, organizational impacts of succession. Traditionally, advisory succession planning has focused on the financial and legal sides of succession, often avoiding getting into the weeds of the messy human/organizational side. The risk to owners is the “quiet quitting” or growing frustration among their presumed next generation of leaders. 

Firm Owners Also Face Their Own Version of the “Stay or Break Away?” Question 

Large aggregator firms often paint a rosy, oversimplified picture of the advantages of selling a large portion of the firm to a larger firm:

• It is a quicker, more profitable way to sell shares without having to provide attractive financing for individual planners to buy in over time.
• Selling will be a clean and easy way to avoid the messy psychological burden of leading their teams through succession. Now, others will do that. 
• Centralized systems and compliance will remove these major burdens from owners.

What Can Planners Do to Make the Right Decision?

All this said, here are two case examples of strategies from success stories:

• Have a plan in place from the start. A career changer, Melissa patiently worked her way up through several different kinds of positions and financial planning firms over 10 years before registering her own RIA. From the start, she knew she wanted to work independently but first took time to learn from the best. Knowing she’d be financially beholden for several years if she took clients with her, she and her spouse banked as much of their incomes as possible, providing her a smooth glidepath to firm ownership during the initial lean years of firm-building. She learned about business management and marketing while still gainfully employed.
  
  
• Use your current firm as a learning laboratory to build skills and try new things. There is no downside to starting out as if you will break away someday. If you fear marketing, demystify and face it. If you opt to stay, you will be seen as a more valuable asset if you have a track record of bringing in new clients. If you fear asking for an increase in your base pay, do it anyway, but first understand measures of success and productivity your firm’s owners most value. Larry, also on the threshold of minority ownership, was specific about the base pay increase he wanted and provided data to support his request. He received a 25% bump in base pay as well as the opportunity to develop new offers for clients prior to buying in. He decided to stay.

And here are some additional success strategies that have worked for my clients:

• If you see others advancing but don’t understand why they did and not you, learn how to read your firm’s organizational diagram. It holds clues into what advancement looks like in terms of increasing responsibilities.
  
  
• If you fear marketing, learn it. Planners who bring in new business often garner more respect from owners and advance further.
  
  
• If you want to be treated with more respect and given more authority, change your internal narrative so you speak and act with greater confidence. Planners who started in their firms as interns may still see themselves as a young student. Now that you’re at the threshold of ownership, you need to develop a new more “leaderly” narrative.
  
  
• Again, if you fear asking for a fair exchange of value, do it anyway. Advisors who fear asking firm owners for an equitable salary are likely to have trouble asking clients for the fees they deserve. A coach can help you structure the “sales” conversation with firm owners and clients.

What Can Firm Owners Do to Hold Onto Their Firm’s Next-Generation Leaders?

Above all else, future minority owners want transparency and openness from majority owners about what their roles and responsibilities will look like as an owner. Do not make promises you are not ready to keep as that erodes trust and raises red flags among your most valued human resources and may erode your brand and professional legacy.

For example, if you are offering 5%, 10%, or 15% ownership, be forthcoming about what, if any, leadership opportunities will come with that level of ownership. If the true answer is “none,” “none yet,” or “we’ll figure that out together once you’re in the role,” be open about it. If you are a firm owner and are considering selling a large share of the firm to a larger aggregator firm, be upfront about it before asking planners to commit to a buy-in decision. 

In Closing 

A wise client of mine once said his goal was to make the best decision he could at the time and then make it the best decision. That’s really all any of us can do. Whether you are a planner who decides to stay or break away, or a founder or majority owner who chooses to sell shares to small minority owners or sell a large portion of the firm to an aggregator, make the best decision you can now, and then make it the very best decision! Asking for objective help with this big decision is a great step. Those of us who offer that help may be best equipped to affirm your concerns and provide broader context.

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Jody Jacobson is a growth and transitions consultant and coach for advisors. Contact her at jody@jodyjacobson.com or visit humanskillsinstitute.com for a complimentary 30-minute consultation.

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