It’s amazing how time flies by. It seems like only yesterday baseball’s spring training games were about to begin and Cambridge was announcing its sponsorship of an inaugural study with IN Advisor Solutions (the research arm of InvestmentNews). The study, on succession planning with independent financial advisors with registered investment advisers (RIAs), is now complete. While the 2012 baseball season is months away from the playoffs, the results from the new succession study are in, and we are excited that the findings will be announced next week in an InvestmentNews webinar also featuring our own Eric Schwartz.
At Cambridge, we firmly believe that business continuity and succession planning are among the biggest challenges facing business owners today and the next generation of financial advisors in the independent channel. Studies continue to show that the majority of advisors do not have a written continuity or succession plan, let alone an identified successor. Why are so many financial advisors not doing a better job of planning for their own business—whether that exit is sudden and unexpected, or a well-planned retirement? Could the reasons be time related, successor related, revenue motivated, or something else altogether? In a previous blog I wrote, “If you want to know what your clients need, ask them!” Asking our clients what they need is exactly what we are doing by sponsoring and participating in the IN Advisor Solutions study.
There are many important questions an independent business owner should ask themselves beyond, “How much is my firm worth?” These questions include:
- Is my business transferable?
- Have I created a sustainable business model?
- What valuation method is right for my business?
- Are there other factors that can increase or decrease the value of the business?
So much time seems to be spent with independent advisors on what gross dealer concession (GDC) is currently being done and whether that revenue is recurring or non-recurring. The focus being that the advisor is annuitizing their business with more recurring revenue today. While that is important, the advisor must also be making decisions that are in the best interest of the business in the long-term. I have a long-term view that the more recurring revenue the business has, generally speaking, that business will be much more valuable in the future.
But, the questions remains, without a written plan and identified successor, is that business really maximizing its value? Who would buy it and pay what the seller thinks it is worth at the last possible second? The reality is that buyers exist in today’s marketplace but are not willing or able to pay full value for emergency business scenarios. It is up to the independent business owner to build real and perceived value in their firm for that next generation of advisors to really achieve the maximum value for their firm.
Why is it that advisors spend so much time planning their clients’ lives and investment goals, but so little time on their own succession plans? Why would an advisor leave their valuable asset “on the table” without a succession or disposition plan? It is these types of questions, and others, that we hope the inaugural succession study will reveal. The result will hopefully give us some insight into building and strengthening our industry, our independent channel, and (most importantly) the independent advisor’s business model.
If you are able, please join us on May 22 as Kelli Cruz of IN Adviser Solutions announces the results and moderates a panel discussion with Eric Schwartz, as an industry expert, and Daniel Seivery, as an expert on valuation. To register for this webinar, join here or visit www.cir2.com. Please also feel free to share your thoughts with the Cambridge family on what you are doing within your practice to prepare for the future, by commenting on this blog post.