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Jan 30, 2009 12:24 am

Please advise.

I have worked as a rep in a small indep office for 15 years.  The Pres and VP left a large BD back in the 80’s and they are 50/50 partners.  My father is the VP and he got me into the biz.

In Dec 07 my dad had a stroke.   Thankfully his health has improved and he has made almost a full recovery, however, his speech was affected and he has trouble meeting, discussing, selling, etc.  This made last year extremely challenging.  I feel we were successful in navigating the rough stretch.  Overall, our joint gross was even with 07, we maintained 100% of our A list clients, and I am confident from face to face meetings that no concerns exist regarding service, client attention or port mgmt.

The health concerns have caused my father to examine his plans for the future.  He has a buy/sell agreement with his partner that was drafted in 85 or so and it initially valued the partnership at 200k.  It provided for periodic valuation updates, however, none were made.  Life ins was purchased on each partner at that time for 100k face.  No additional coverage was purchased.  My father’s largest asset is his ownership stake in the firm and I feel he and my mother may need to rely on it to a degree to fund their retirement.

He and his partner have made some verbal agreements re: the buy/sell.  I am trying to get a feel for what this should look like.  Q1:  What is a fair revenue multiple in this environment based on last years gross made up of 50/50 fees/commissions? 1.5? 2.0?  Q2-a:  Does the buy/sell agreement cover both the sale of his book and his ownership stake in the firm?  Q2-b: Are his book and his ownership stake in the firm distinct?  I mean, could he sell his book and maintain 50% ownership of the firm?  Q3:  How is the sale of a retiring reps book handled at a wirehouse?  A payment schedule from one rep to another over time based on revenue, right?  Is that an option at an independent firm for an owner/partner?

I am embarrassed to say that prior to his stroke we did not discuss his plans and I don’t know how this type of transition should be handled.  My primary concern is my mother.  If that buy/sell goes off, I need to know she will be taken care of.  I trust his partner and he has assured me that he plans to honor the intent of the agreement.  Still, I am looking for feedback from those of you with experience here.  Thank you in advance.

Jan 30, 2009 1:12 am

…you are welcome to submit a resume with an offer to purchase his book. 

In fact, if you can get here by Monday you can get started taking all his client calls while you negotiate payment.


Jan 30, 2009 2:08 am

seriously slouzcar, you might want to ask him most of these questions.  many details should be in the buy/sell or else there is really no answer to these questions.  if he really wants out you two need to discuss this further and either speak with his partner or seek counsel beforehand, if you feel it will be a messy split.
the going rate, least what i have seen, is right around the 1.5 mark.  and as for payment, it can be set up anyway the two parties agree.  again, no right/wrong way to do it.

Jan 30, 2009 2:54 am

Thank you for your input.

The buy/sell is extremely basic/cookie cutter.  It outlines that a surviving partner has 30 days to purchase the shares from the spouse should a triggering event occur, that the initial valuation of the partnership was $200k, and that the valuation can be amended in writing by the parties periodically.  It does not address the topic of a book of business vs. a share of ownership, which is why I was seeking feedback. 

If the industry standard is that an owner’s book and his share of ownership in a firm are one and the same… then my dad’s partner would purchase his ownership share and the firm would then own his book, service the accounts, hire a new rep, etc.  If they are distinct then perhaps my dad could sell his book to help fund his retirement then later, sell the business, or ultimately the buy sell will kick in, and a partner would then purchase his share from my mom.

I have discussed this with him.  He has a hard time communicating and he doesn’t know what options are available to him.  And frankly, he is close with his partner and imo he fears questioning specifics strains any transition.

Jan 30, 2009 3:24 am

Slou -

If you want to talk, check your PM -

We just did a partner buyout for health reasons also. It went well, and the buyout can be structured a variety of different ways - too many to type and too much information to share.


Jan 30, 2009 8:25 pm

Downside is that he likely can’t qualify for more life insurance at this point.  In reality, he should get the business professionally appraised by an industry expert (i.e. FTP Transitions, etc.).  The B/D may also be able to help with this type of situation.  Most of them provide transition assistance, and could at elast provide ballpark valuations.  I would suggest getting more than one valuation for your own (father’s/mother’s) benefit.  If it ever came down to a disagreement on valuation, at least you have thoe industry standards to back you up.

Jan 30, 2009 9:17 pm

Thank you. That is a logical place to get some objective feedback.  I should have called the B/D right off the bat.  And multiple valuations makes a lot of sense.

On that note, I have a buy/sell follow up question.  The valuation in the buy/sell was never revised.  So  technically, the partner could show up with 100k and execute following a trigger.  We have discussed a simple amendment at 1x trailing rev to compromise and buy time while they seek an independent valuation.  The document could be modified in a few minutes with signatures.  But it has been a year and it still is not updated…

Q: What if the partner, now seeing the change in health status, drags his feet or is unwilling to revise the valuation?  Can a partner or a surviving spouse question the fair market value assessment of the buy/sell with a third party valuation?  The document simply states that the valuation may be updated from time to time. 

Jan 30, 2009 9:40 pm

I have two basic questions.

Is your firm structured such that all clients are shared firm clients from a revenue standpoint? Or is it that you (and your dad) have your clients, for which you get the corresponding revenue) and your dad’s partner has his clients, for which he gets the revenue?

Secondly, does there exist any written agreement as to what would happen if one of the partners chose to leave the firm for any reason and take his clients?

Jan 31, 2009 1:22 am

My father, his partner, myself and another rep each have our own clients and each receive the corresponding revenue.  Last year, following my father’s stroke, he and I set up a separate rep code and moved some of his client accounts into it.  I agreed to work those clients for a  25% share of the revenue. 

No agreement exists for our firm to my knowledge.  We have a non-compete with the B/D.   

Jan 31, 2009 1:36 am

Non-compete or non-solicit?

They are not the same thing.

Jan 31, 2009 2:23 am

Slouzcar, are you and your dad investment advisors or financial advisors?

Jan 31, 2009 2:49 am

anon: …reg rep’s for a indep B/D and ia’s for our firm’s SEC RIA

Jan 31, 2009 5:18 am

I’m not Brent.  It’s too bad that you ASS-U-med something that isn’t true.

Jan 31, 2009 10:45 am

anon: …reg rep’s for a indep B/D and ia’s for our firm’s SEC RIA

  I assumed that part.     Let  rephrase my question.   Do your clients look at you as their financial advisor or just their investment advisor?
Jan 31, 2009 2:20 pm

my bad,

…investment advisor.

Jan 31, 2009 7:34 pm

I read this all pretty fast, so maybe I missed it, but I guess I don’t understand why YOU could not assume your father’s clients and buy them from your father.  surely you could work out some kind of override arrangement with your father’s partner and maintain all the relationships?  Losing your dad’s book for $100K sounds crazy.  If your dad’s partner is a good guy (and has built a good book of his own) surely he’d be willing to let you have what your father built?

Feb 9, 2009 4:08 pm

thank you rrbd

We are working with an attorney.  My initial concern is that current counsel may not be familiar with industry specific standards or norms re: partners and books.  Prior to ramping up discussions with this attorney I was attempting to get some feedback from others who have been through the retiring partner dance previously.  I find that insight into actual experience is extremely helpful in roughing in expectations or plans.

Feb 14, 2009 1:01 am

Again thank you for the useful insight despite the “all due respect” disclaimer/backhanded compliment.

The attorney we have spoken with re: the buy/sell is the attny used for a number of industry related matters and he is familiar with industry practices and regs.  He is not exactly a proctologist.   I guess the overall complexity made me think seeking feedback from others that have been through the pleasurable experience would be useful.  Typically you discuss topics in forum like this and on occassion the input is useful. 

Of course, I am not personally attempting any surgery.  (I love how attorneys view themselves as comparable to brain surgeons.  More than a stretch, with all due respect, of course.)

I will head you advice and request my dad seek additional input from a professional well versed in the arcane rules and regs.