Shouldn’t exit advisors be following their own advice?

by IdeaTransfer on July 13, 2011

Nobody sees more directly the aspirations and concerns family business founders have for the future of their enterprises than the financial advisors who provide wealth preservation and business continuity planning.   Yet few of these advisors are prepared for their own future ownership transitions.  If both groups don’t act today, they are throwing away tomorrow’s opportunities.

Independent financial advisory firms understand they are problematic candidates for acquisition. Most were founded decades ago by independent producers with strong client relationship skills and a passion for advancing their knowledge–two success factors that are effectively irreplaceable.  And while successful producers can achieve enviably high revenues, cash flow and growth tend to be unenviably irregular due to client decision cycles and life insurance compensation models.

So how can producer/founders overcome the exit obstacles? They might resolve inconsistent revenue and growth by expanding their firms’ services in financial areas with steady revenue—employee benefits, asset management, property/casualty.   Meanwhile, steps to replicate the founder could include developing a second tier of non-owner producers—experienced advisors from other professions who can crossover or less experienced producers who can rise to advanced market capabilities.

The breakdowns of these strategies are the unintended consequences.  The price of creating value through expansion is the need for management.  Producer founders thrive as idea people.  Management stress makes them less productive, office-bound, and frustrated.  Sure, the ideal is finding great people, but real world is that people are just people and need management.  When it isn’t there, firms tend to fragment into silos–not what outside buyers are inspired by.

A similar consequence comes with adding a second tier of producers who could be groomed as future owners.  If they are as good as the founder, why would they want the second tier?  If they are comfortable the second tier, who will raise them to advanced market knowledge and relationship skill?  Producer founders are impatient trainers and reluctant to experiment on their clients, making it hard for either side to embrace a future ownership commitment.

In our experience the most likely success track for future ownership transfer runs through family members or family-like protégés.  At the advanced market level financial services is a relationship business with a multigenerational dimension.   Building a multigenerational firm to serve clients across generations makes a strong story.  Also, the financial component of ownership transition becomes potentially easier.  However, as in any multigenerational business, the development process crossespsychological minefields and generational conflicts that have to be resolved.

We have been involved in all the scenarios, and all are doable with the right resources and tools.  However, there are still two factors that nobody ever seems to plan for.

First, all these strategies take more time than anyone anticipates.  Most advanced market producers spent a decade gaining the knowledge and skills that supported their breakout independence, followed by another decade to mature the firm.  Maybe a decade more at the top of their game, and suddenly they no longer have the time it would take to duplicate their history—not to mention the system they went through is gone.

So how can producers telescope the process to build a firm someone wants to take over—outsider, insider, or family?  That’s where IdeaTransfer comes through with our Advance Market Toolkit and personal coaching to build the firm value around the right people and capabilities internally and the right marketing and planning process externally.

Second, producers never really want to exit the business.  The idea is preposterous to anyone who loves the business like they do.  If they could, they would focus on the emotionally rewarding aspects of their profession, leaving the rest to the next owners as part of the transition process.  It is a great picture, but unless producers formally integrate this new role into the ownership transition process, the picture will never become reality.

We coach producers how to let go of the founder role as well as the internal leadership it required all those years.  Meanwhile, we help create the right structure for the firm to adapt to new leadership.  Then we help founders define and embrace an ambassador role and the external leadership it requires.  The next stage of personal growth is about networks in the community and the industry that will grow the firm’s revenue and develop resources for the next stage of business growth–which is exactly what they love about the business.

So, what’s your time frame–5-10 years?  Let us offer our recommendations to make it happen in time and on time.

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