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Optimize Your Practice's Value by Building an Intergenerational Team

Optimize Your Practice's Value by Building an Intergenerational Team

The strongest intergenerational businesses within the independent financial services space will be comprised of women and men, the young and the old, and professionals of varying races, creeds and backgrounds.

One crucial difference between the independent financial advice space and the wirehouse world is the unique ability of independent advisors to build their own business based on personalized client relationships and then to monetize that business at some point in the future according to the advisor's specific time frame and goals.

Due to the convergence of demographic and industry trends today, independent advisors face a rising risk of not being able to drive maximum value out of selling their practices, which is almost always more valuable than simply selling one's client relationships. In order to maximize value, the practice must be treated as a business, which is dramatically different than running an advisory practice.

While this may seem like a laughable notion in today's marketplace, where prospective buyers of established independent practices currently outnumber anticipated sellers, the real story argues for a potentially darker long-term outlook if we're not careful as an industry. 

We all know many of the broad brush strokes of that story already: A significant portion of successful independent advisors are maturing and readying themselves for retirement, even as their baby boomer client demographic does the same. Simultaneously, fewer young people are seeking careers as financial advisors, even as many traditional training grounds for new advisors to enter the industry evaporate. The industry may be facing a perfect storm.

Fast forward and put yourself in the shoes of a potential future buyer looking at independent practices staffed by aging professionals and driving the majority of the firm's revenue from clients who are well past the wealth accumulation phase. Are you going to pay a premium for an independent practice that lacks intergenerational bench strength - and a client base beyond the traditional boomer demographic?

Clearly, the way to build a strong and enduring business that continues to generate value year after year is by developing true intergenerational strength in terms of depth of the professional bench internally, which in turn creates the ability to capture and better serve a more diverse and growth-oriented client base.

Here are the top four tactics independent advisory practices should adopt towards this end:  

Clearly Define Roles and Responsibilities for New Hires 

Far too many independent advisory practices never transition out of the more amorphous start-up approach of hiring all-purpose professionals who can be deployed for various responsibilities on a "catch all" basis as necessary.

While this makes sense in the early years of any new venture, for any independent practice seeking to position itself for long-term growth and value creation, it's critical to clearly define roles and responsibilities for new hires. This isn't about "pigeonholing" hires, a frequent worry among independent practices.  Rather, doing this will not only ensure that individual talents within the firm complement each other well, but it will allow professionals to stay focused and perform at a higher level.

As an integral part of this approach, firms should also provide each new hire with a detailed and transparent career path, one that shows them up-front how they can grow and prosper as they take on more work and added responsibility in specific areas of the business.

All of this creates an internal staff that knows what each individual is supposed to do, how those separate responsibilities roll up into a cumulative value proposition for the practice's clients, and precisely how individual performance can drive lasting career prospects. This approach ensures that clients will receive the best possible long-term service by professionals who are constantly moving up the value chain of knowledge, expertise and service.  At the same time, this helps the practice better stay on track to meet its long-term goals – which invariably are centered around servicing clients and  achieving growth, in desirable client relationships, assets under management and revenues.


Build an Ownership Culture and Communicate it Clearly from the Outset  

Many younger advisors have expressed disillusionment with the industry because they feel that growth opportunities are limited outside of increasing their own production levels.  This lack of motivation and a feeling of not having any pathways towards longer-term ownership has an obviously harmful impact on recruiting, retention and career growth from a staffing standpoint.

Independent advisor practices that are seeking to build highly motivated staff members who can align around a broader growth mission can address this concern by taking advantage of the benefits offered by their unique business model.  The most obvious method is to offer equity, but for reasons related to both tax and control priorities by practice owners, this may not always be preferable.

The other option is to have a very clear-cut net profit sharing plan, with assigned percentages within a net profit sharing pool that is itself based on a transparent set of overall percentages of total revenue. Membership in the net profit sharing plan should be restricted to high-performing professionals and participation in the plan should include transparent distributions on a regular basis, assuming necessary firm-wide financial metrics are met.  In short, membership in a net profit sharing plan can simulate many of the more desirable characteristics of traditional equity compensation in a privately held business, while preserving certain founder-owner prerogatives.

The key takeaway here is that, by giving top-performing professionals a clear sense of having ‘skin in the game,’ almost all ambitious professionals will strive to meet and exceed goals to earn the right to participate in the profit sharing plan of the firm. With the plan in place, everyday work behavior will be more closely aligned with the ongoing growth goals of the firm.

Align Compensation to Generate Particular Rewards with Successful New Business Development Activities

In keeping with the above, firms need to establish a clear and transparent compensation structure that rewards professionals who excel at bringing in new business. While it is important to have a technically gifted staff that do the research and implement financial plans, this is a relationship-driven business.

Yes, existing clients are vitally important and must be well served, but ultimately the long-term strength of any firm depends on its ability to continue adding new client relationships. The most technically skilled team in the space means nothing if there are no clients to serve. To have success and build on it, firms need rain makers, and every compensation structure should reflect this reality.


Hire for Skills, Not for Age or Other Perceived Demographic Needs

In terms of the raw demographic numbers, the financial advice industry is mature, white and male. These demographics, of course, are not a secret. For years, many firms have been focused on bringing more diverse millennial talent into the fold in an attempt to become younger and connect better with the next generation of investors. But it’s possible to go too far with this approach.

While it’s clear that nearly all firms have some sort of skills gap – whether it’s technology, product due diligence, marketing, money management or business development – it’s important to fill such gaps with the most talented professional, whatever generation, ethnicity, or gender they belong to. At the end of the day, talent reigns supreme, and if you start by looking for a diverse talent base, the overall demographic diversity that always benefits any business over the long run will happen naturally.


Going forward it’s pretty clear that the strongest intergenerational businesses within the independent financial services space will be comprised of women and men, the young and the old, and professionals of varying races, creeds and backgrounds.

Equally clear, however, is that such professionals will also have to be well-rounded, having the ability not only to serve existing relationships, but generate new ones. That’s what the most successful, enduring independent financial advisory practices will look like in the future. And those are the ones that will continue to build maximum value for their owners and founders.


Jeffrey Rosenthal is executive vice president and chief marketing officer of Triad Advisors (, the hybrid advisor-focused independent broker-dealer.

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