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Staff Sore Points Emerge in Times of Transition

By Steven Lang October 22, 2015

Advisors and staffers get a little nervous when change is afoot at a firm. Whether it’s an acquisition, or a decision to go independent or bring in new technology, they want reassurance the new thing won’t threaten the workplace they know and will help them retain clients.

When Pittsburgh-based D.B. Root & Company, which manages $650 million, decided to become an independent RIA earlier this month, two of its senior advisors got the heebie-jeebies, says CEO Dave Root Jr.

The firm had been using indie brokerage Commonwealth Financial Network for 18 years when the nervous FAs came to Root to ask why he was so keen to “rock the boat.” The executive had to explain that the industry was trending toward independence and the fiduciary standard, and that this was in sync with his overall strategic plans. In view of having to migrate client accounts from Commonwealth to an RIA custodian, one squeamish advisor wondered if the move was worth the potential disruption.

Point is, though these skeptical advisors eventually came around, the move to independence put D.B. Root’s principal on the spot to calm nerves and settle troubled minds.

Garrett Taylor is managing partner at Port Jefferson, N.Y.-based Coastline Wealth Management, which manages $300 million. The firm has acquired six others in the past three years, and he says it can be “scary” for employees brought into a firm in this fashion. And this disquiet, unaddressed, can be bad for business. After all, he says, support staff are at least as important to a firm’s smooth functioning and healthy client relationships as FAs. “They are the people doing the day-to-day work,” he says. So he takes care to keep clients matched with the staffers they know and expose clients only slowly to new team members and unfamiliar technologies.

Dave Root Jr.

As critical is keeping new-to-the-firm advisors secure and productive. “There will always be some friction around investment philosophy and fees,” says Taylor — but he is keen to meet his advisors’ needs. Coastline leans toward a fee structure but sometimes allows a commission if the advisor is adamant. And for former solo practitioners who are used to handling all components of the business, the firm is at pains to teach them about the advantages of teamwork.

Erika Cramer, managing director at New York-based Silver Lane Advisors, says fostering cultural compatibility is important when companies merge or are bought and sold. Silver Lane is an investment-banking boutique that advises wealth- and asset-management firms on acquisitions. Rather than massaging advisor morale after a deal is done, it’s better to assess the cultural fit before signing on the dotted line, especially in areas like client service and investment philosophy.

Cramer says that if “alignment of interests” is not already in place, it should be explained to financial advisors that the seller is seeking a broader network of high-net-worth clients and this is an opportunity for that advisor. Sometimes, a retention bonus or new equity incentive is necessary for advisors, she adds.

Sometimes the problem isn’t a new working environment; sometimes it’s new technology. LPLSVP of technology Chris Paul says it’s all about staying ahead of any employee anxieties. On the technology front, he tries to do this by looping them into platform development. “In doing that, our advisors feel they have been with us all the way.” As a result, they’re apt to feel some ownership for the new system.

“They say, ‘Hey, I designed that; I can’t wait to use it,’” says Paul.

Why advisers are skipping succession planning

Fears of client defections, firm undervaluation keep advisers from planning their exits.


Advisers underestimate the importance of succession planning and don’t spend enough time devising and implementing plans, according to panelists on yesterday’s InvestmentNews webcast. And it shows — less than one-quarter of advisers have prepared their business for their own departure.

Participants on the webcast panel included succession planning experts Brad Bueermann, chief executive officer of FP Transitions LLC, and Garrett Taylor, president of Advisor Successions LLC, who emphasized the point that a plan should fit not only the adviser’s own personal needs but the needs of their support team and, of course, their clients.

“On the transition front, the thing that keeps everyone awake at night is whether the clients stay,” Mr. Bueermann said. “If you write a large check and then the clients scatter to the wind, you’ll have bought a bag full of feathers.”

One suggestion by Mr. Taylor is to consider a succession plan that allows team members to take over the business from their boss. However, that requires an alignment of interests.

“It’s about getting the compensation right, using all the components available to you, including performance compensation, salaries and profit sharing,” he said. “At that point, you will encourage the members of your team to contemplate buying in.”

According to Mr. Bueermann, one reason advisers are reluctant to create a full-fledged succession plan is that it forces them to confront the value of their book, which is often less than expected.

“Common roadblocks are that advisers have an inflated value of what their business is actually worth,” he said. “It’s very difficult for someone looking to sell their business after being in it for 30, 40, 50 years — and blood, sweat and tears.”

The financial adviser on the panel, John Enright, principal of Custom Wealth Management, sees his industry as woefully underprepared for inevitable transfers of power. But he understands why advisers are reluctant to entertain the idea of succession.

“How are these valuations done?” he asked. “I just get frustrated getting [my business] plugged into a box. A lot of us believe our practice is worth much more than we’re told it is.”

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