Succession Blues

An advisor's problem finding someone to eventually take over his business comes down to asking too much for too little

At 66, Jerry Boisseau wants to keep working but is anxious to find a successor for his small advisory business. For advice, we interviewed Rebecca Pomering, a principal with Moss Adams, a Seattle firm specializing in practice management consulting for financial advisors, along with Shannon Waller, director of new program development and a coach with Toronto-based The Strategic Coach, which provides coaching to entrepreneurs, and Curt Weil, a member of the Financial Planning Association's board of directors and a partner with Weil Capital Management, an advisory firm in Palo Alto, Calif.

THE SITUATION:

Boisseau runs Amherst Financial Advisors in Toms River, N.J., a small middle-class town south of New York known for its Little League champs. His firm has just $23 million in assets under management, and he's spent years without any luck trying to find someone to help him build up his business and continue running it after he retires.

Boisseau started in the industry after a 20-year career in the Army that included a two-year stint in Vietnam and assignments everywhere from Kitzingen, Germany, to Fayetteville, N.C. His last assignment was in Amherst, Mass., teaching an ROTC course at the University of Massachusetts. When, in 1981, he decided it was time to enter civilian life, he stayed in the area, taking a job as a broker with what was then Bache Halsey Stuart Shields in Springfield, Mass.

Six years later, he moved to Toms River to help run his wife's family real estate leasing company. Not willing to completely stop his work as a financial advisor or give up his series 7, Boisseau set up his own practice as a sideline business, serving a handful of his Massachusetts clients. That worked for a while. But after four years, Boisseau realized he had to make a choice, so he left his wife's company to run his practice full-time.

He began slowly building the business through word of mouth. At the same time, he struck up a friendship with an accountant and certified financial planner, who joined Amherst as a part-timer. Boisseau, who had a series 24 in addition to his series 7 and 63, received a percentage of the man's commissions. Seven years later, he hired an operations and computer person and, not long after that, his daughter came on board as a paraplanner and administrative assistant.

It was when Boisseau was approaching 60 that he started seriously thinking about bringing someone else into the practice. While teaching a certified financial planner course at a nearby community college, he got to know one of his students, who needed more experience to fulfill his three-year work requirement, and invited him to join the firm. Things went well for three years, until Boisseau decided to make a move he'd long considered — going fee-only — and broke off his broker/dealer affiliation. The new advisor and the part-time CFP left.

So, Boisseau had to start his search from scratch. He started using the job-listing section on the Financial Planning Association Web site. And, about one-and-a-half years ago, Boisseau signed on with Schwab Institutional's new Advisor Transition Support program. He tried it for about nine months — with no success. Over the past five years, he's interviewed perhaps a total of half a dozen people “at various stages of their careers,” but no one, he says, has seemed to fit his ideal — a brokerage house refugee, with $5 million to $10 million in assets under management already under his or her belt, looking for a mentor.

“That would give them built-in fees to draw from in the early years,” says Boisseau, who also figures he'll probably continue to keep their books separate even as the new advisor's business grows.

Still, for Boisseau the biggest mistake would be to move too fast. He says he plans to keep working for another 10 to 15 years, so he still has time to find someone. And he wants to make sure he's found a keeper before signing on the dotted line.

“I'm not going to jump at the first prospect,” he says. “If a new person in a small organization doesn't work out, it becomes very disruptive.”

THE ADVICE:

Rebecca Pomering

My main issues are with the way he'd like to structure the job. He wants the advisor to have assets that would give him or her built-in fees to draw from in the early years. But that means they completely shoulder the burden of feeding themselves. That won't appeal to many advisors, especially if they have a small asset base. If he's asking them to come on board without any other guarantees, it's not going to be very appealing.

Instead, Boisseau should expect to pay some money out of pocket to the advisor for at least 18 months. That means providing a base salary, maybe $30,000 to $40,000 a year, plus some percentage of their production. He's going to have to give them decent money and he's going to have to take some risk by paying some of that upfront.

But, also, I question his plans not to pool assets. The new advisor's accounts need to belong to the firm. If they own their own clients, then they're not contributing anything to the equity of the business. In the beginning, Boisseau has a choice. He can buy the advisor's accounts, making them clients of the firm and ensuring that the individual can't take that book of business if he or she leaves. Alternatively, he can let the advisor keep only those clients he or she brings to the firm initially. But, if Boisseau decides in three to five years to make the person an equity owner, then he will come up with a value for those accounts and apply that amount to the advisor's capital contribution.

Shannon Waller

If Boisseau really doesn't plan to retire for another 10 to 15 years, that's potentially a problem. He's talking about a long-term payoff. But if you look at demographic characteristics, especially for Gen Y'ers, a lot of times they don't plan to stay with a firm for more than five years. And, making it harder, he wants to find an advisor who will immediately bring in his or her own revenue source and is willing to go straight from a brokerage house to a fee-only firm.

As a result, he needs to package what he has to offer in a way that makes it really attractive. I'm not sure he's thought about what he needs to do to be of interest to the kind of person he wants. I think he's missing potential candidates because they don't see a reason to join the firm.

What he can offer is mentoring. But he needs to get more specific. If Boisseau could package different methods for mentoring someone and improving their skills, then he would become much more attractive. For example, if there is a unique way he does business with his clients, a process he leads them through, then that's something he can pass on.

When it comes to sharing clients, he has to rethink his approach. I think he will need to find a way to transfer his accounts at some point. Otherwise there's no attraction to someone coming into the business. Up until now, as a solo practitioner, I think the practice has provided a great job for him. But he has to create a business if he's going to turn it over.

Curt Weil

Since he doesn't want to retire for 10 to 15 years, he has some time to bring in a candidate and, if they don't work out, let them go and bring in another. But my suggestion is that he start doing more teaching as a recruiting method. He'll see a stream of potential talent. One possibility is to bring someone in as an intern to get a better sense of him for a while. If the candidate looks like a fit, then he can offer him a job. Since the candidate is trying to get experience, Boisseau can hire him cheaply, giving him what he would pay an administrative person. If he works out, Boisseau can pay him more. And if it really works out, he can offer to have the new advisor buy him out.

My point is that he's going to have to be willing to take something out of his earnings to pay a salary. Eventually, when the advisor is more productive, he or she will get a slice of the profits. Or, he could use another form of compensation, depending on whatever formula is worked out.

I also think all accounts should become clients of the firm almost immediately. Clients won't be worried anymore about how they'd fare if something were to happen to Boisseau. Also, if he doesn't do that, he's going to wind up with an advisor who could leave the firm, taking his or her clients along. Boisseau still seems to have an eat-what-you-kill mindset. But it's not going to work. He needs a new paradigm.

I'm also concerned about what I consider to be the unrealistic expectation that he can hire someone with $5 million to $10 million in assets who will submit to his terms. His chances of finding someone with that amount of assets are fairly slim.

Fix My Business is a semi-regular feature that seeks solutions to real-world advisory problems from a group of consultants and industry insiders. Submit your questions to [email protected]

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