PowerPoint 演示文稿 - FPA of Kentuckiana

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The Case for Succession Planning
Sameer S. Somal, CFA, CFP®
And
Lenore A. Reiner, CFP®
“Not everything that can be counted counts,
and not everything that counts can be counted.”
–Albert Einstein [1879 – 1955]
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
1
Disclosure Slide 1
Presentations are intended for educational and informational purposes only and
do not replace independent professional advice. Statements of fact and opinions
expressed are those of the participants individually and, unless expressly stated
to the contrary, are not the opinion or position of Blue Ocean Global Wealth or
any person, organization, or government referenced. Blue Ocean Global Wealth
(or any legal entity referenced) does not endorse, approve, or assume
responsibility for, the content, accuracy or completeness of the information
presented.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
2
Disclosure Slide 2
Views contained in this presentation regarding a particular company, security, industry or
market sector do not necessarily represent the views of Blue Ocean Global Wealth, Motley
Fool Asset Management, Motley Fool Funds, Foreside Distributors, or their affiliates and
subsidiaries. References to stocks, securities or other types of investments should not be
considered a recommendation to buy or sell. Information contained in this report is
current as of the date of publication and has been obtained from third party sources
believed to be reliable. Blue Ocean Global Wealth, Motley Fool Asset Management,
Motley Fool Funds, and Foreside Funds Distributors along with their affiliates and
subsidiaries, do not warrant or make any representations regarding the use or the results
of the information contained herein in terms of its correctness, accuracy, timeliness,
reliability, or otherwise, and does not accept any responsibility for any loss or damage
that results from its use. Under no circumstances should the information provided herein
be relied upon as investment advice.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
3
Disclosure Slide 3
Blue Ocean Global Wealth, Motley Fool Asset Management, Motley Fool Funds, and
Foreside Funds Distributors intend that this presentation will be viewed for informational
and educational purposes only. The information in this material is not intended as tax or
legal advice. It may not be used for the purpose of avoiding any federal tax penalties.
Please consult legal or tax professionals for specific information regarding your individual
situation. The opinions expressed and material provided are for general information, and
should not be considered a solicitation for the purchase or sale of any security or
investment.
Images, content, and published articles are for reference and illustrative purposes only.
Under no circumstances should any image, logo, continent or article be viewed as an
endorsement for this presentation or any of its contents. This presentation is for
educational purposes only. Under no circumstances should the information provided herein
be relied upon as legal, tax, or investment advice.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
4
Background on Industry
• Relatively young industry – 12/12/1969
• Financial Advisors are seeing their clients retire
• Fragmented industry
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
5
Blue Ocean Global Wealth
• The supply and demand imbalance of quality financial
planning advice.
• Lack of global professional and intellectual development
opportunities for today’s graduates and tomorrow’s
industry leaders.
• A maturing financial advisors demographic that merits an
innovative partnership solution.
• Interdependence of our global supply chain with respect
to technology, communication, and human capital.
http://www.blueoceanglobalwealth.com
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
6
Our White Paper
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
7
Naturally, This Conversation Is Hard
•
A lack of standardized options, varying degrees of competency, and a
fragmented industry all perpetuate ambiguity and confusion when
attempting to formulate a succession plan.
•
How long do I want to serve my clients full-time or part-time basis?
•
What are the principles and core beliefs I need present in order to
consider trusting another advisor to care for my clients?
•
Am I concerned about telling my clients about my succession plan, or
have they been hinting at their desire for me to have one?
•
What are my spouse’s retirement dreams? Advisors may neglect
having the dream retirement conversations with their own spouses,
the same one they initiate and facilitate for their own clients.
•
What activities will I pursue when partially or fully retired?
Rank and prioritize your succession outcomes:
Legacy vs. Time vs. Family vs. Money
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
8
Our Mission
Effective succession planning is emotionally complicated and
deeply personal. The decision by financial advisors to
consciously address and evaluate how to retire or transition is
perhaps the most difficult one they will make.
We hope this presentation will accomplish the following:
1. Engage financial advisors and convey the risks associated with not
having a succession plan.
2. Raise awareness among the national advisory community that not
having an exit strategy is a ubiquitous, national phenomenon.
3. Provide our audience with pertinent information and, ultimately, a
more expansive decision-making framework when personally
addressing this industry wide quandary.
http://www.nasa.gov/content/mission-control-celebrates-success-of-apollo-11/#.U58csY1dXnI
Cheng, Marguerita M., and Sameer S. Somal. “The Case for Succession Planning”. Blue Ocean Global Wealth, 2013.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
9
Agenda
Introduction: The Case For Succession Planning Video
1. Background & Framework
• Contingency Planning
• Business Cycle
• Valuation
2. Context & Options Today
• Demographic context
• Talent shortage
• Practice vs Firm
3. Implementing a Succession Plan
• Preplanning due diligence
• Transition
• Innovated solution
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
10
The Case for Succession Planning
Background & Framework
“You cannot build a dream on a foundation of sand. To weather the test of
storms, it must be cemented in the heart with uncompromising conviction.”
–T.F. Hodge
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
11
Blue Ocean National Survey
“Advisors take the personal delivery of financial planning and
the relationships with their clients so seriously that they are
reluctant to delegate to the next generation.”
-Kevin R. Keller, CFP Board CEO
Keller, K. (2013, March 14) Personal Interview.
“We need to plan with certainty for the uncertainty. We need a
Plan A, B, C and D and be open to other possibilities.
Sometimes people come in and look at succession as a
transaction and not a process.”
-Janet Stanzak, CFP®, 2013 FPA President-Elect
Stanzak, J. (2013, February 20). Telephone Interview.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
12
Triggering Events
•
•
•
•
•
•
•
•
Attempted sale or transfer
Retirement
Termination (voluntary or involuntary)
Death
Disability
Divorce
Bankruptcy
Regulatory enforcement or disqualification
Tibergien, Mark C., and Owen Dahl. “How To Value, Buy, Or Sell A Financial Advisory Practice”. Princeton, New Jersey: Bloomberg Press, 2006.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
13
Contingency Planning
•
A Contingency plan is a plan devised for an outcome other than in the usual (expected) plan. It is
often used for risk management when an exceptional risk that, though unlikely, would have
catastrophic consequences.
•
Business continuity planning identifies an organization’s exposure to internal and external threats
and synthesizes hard and soft assets to provide effective prevention and recovery for the
organization, while maintaining competitive advantage and value system integrity.
•
Financial Industry Regulatory Authority (FINRA) forbids commissions and advisory fees to pass
through to a nonregistered spouse in the event of death or disability.
“Failing to plan is planning to fail.”
–Benjamin Franklin[1706-1790]
14
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
Common Problems in Buy-Sell Agreements
1. Standard of value: How is value defined?
2. Purchase-price standard:
What is being valued?
3. Silence on the key points:
What information is missing?
4. Actions by shareholders:
How does management stay informed?
Tibergien, Mark C., and Owen Dahl. “How To Value, Buy, Or Sell A Financial Advisory Practice”. Princeton, New Jersey: Bloomberg Press, 2006.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
15
Recognize the Risk
• Most business owners, across industries, ultimately hand
over the reins of their practices to a successor too late,
failing to maximize value and realize their intended vision
of succession.
• The irony in the advisory business is that we plan for our
clients retirement but not our own.
• When your clients don’t plan for retirement they face a
greater risk of missing their goals. Similarly, when advisors
ignore succession planning they face a greater risk of
mismanaging their enterprise value.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
16
Succession Planning & Management
• Definition:
“Succession Planning and Management”, or SPM, is a purposeful and systematic effort made by an organization to
ensure leadership continuity, retain and develop knowledge and intellectual capital for the future, and encourage
individual employee growth and development”.
• Similar concepts:
Replacement Planning is a reactive approach to staffing that involves identifying replacements for key positions,
usually at the senior levels of the organization.
The three concepts can be placed on a continuum, with Replacement Planning at one end and Succession
Management at the other, with Succession Planning somewhere in between. The differences between the three
practices are highlighted below:
http://dcb9maxnxelio.cloudfront.net/wp-content/uploads/2012/06/Succession-Planning-and-Management.pdf
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
17
Odds Favor No Plan
•
Some statistics:
(4) Employees’ fear of change.
(5) The roles of active versus passive family members.
Spousal influences.
•
• Reasons why companies don’t have a succession
plan:
(1) Fear of discussing the future beyond the lifetimes
of the owners.
(2) Fear of letting go and/or loss of s meaningful life.
(3) Norms against favoring siblings and difficulty in
making hard choices.
Four phases to a successful succession plan:
(1) Initiation: When children, or others, begin to learn
about the business and making decisions about
coming into the business.
(2) Education: Training and educating potential
successors and providing a path to growth and
responsibility.
(3) Selection: Choosing who will be the successor(s),
the company’s leader(s), in the next generation.
(4) Transition: The timely, orderly and final transfer of
control to a successor, which may also include the
role, if any, of the current owner.
http://contractormag.com/guest_columnist/family-business-succession-planning-1111
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
18
Business Owner Clients Need
Succession Planning
• 88% of current family business owners
believe the same lineage will control their
entity in five years.
• Only about 30% of family businesses
survive into the second generation.
• 12% are still viable into the third
generation.
• 3% of all family businesses operate into
the fourth generation and beyond.
Source: http://www.familybusinessinstitute.com
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
19
An Intergenerational Quandary
Succession Planning
If the leadership element is critical to the success of your company,
isn’t succession planning a vital part of your overall strategic plan?
By Idalene F.Kesner
According to a recent Conference Board report. Executives
themselves consider succession one of the two most
important issues they will face in the near future.
Yet, relatively few firms engage in any type of advance
succession planning; and still fewer firms have well
established plans in place. For many companies, succession
planning begins only after a vacancy appears, which means
that instead of adopting a pro-active stance, management
becomes reactive. What is best handled as an evolutionary
process turns into more of a “fire fighting ” exercise.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
20
Core Business Succession Planning Breakdown
Ownership Succession Issues:
Management Succession Planning:
• Leaving the business to a surviving child or
spouse
• Planning in a vacuum – hubris
• Equitable division amongst heirs and children
• Technical Mistakes
•
•
•
•
•
Source: http://www.familybusinessinstitute.com
Sales
Marketing
Finance & Admin
Operations
Customer Fulfillment
http://chaoscomplexityineducation.wikidot.com/
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
21
Case Study on Succession Planning
Overview
Mary Kay Inc. is a cosmetics and skin care powerhouse. As one of the
world’s largest direct selling companies with more than $2.5 billion in annual
wholesale sales worldwide, Mary Kay’s Human Resources Division tracks and
manages the performance and growth for over 4,500 full time employees
and over 2 million Independent Beauty Consultants selling products in over
35 countries.
Solution
In late 2009, Mary Kay had finished the successful implementation of Aquire
OrgPublisher, their online organization charting solution. Based on the
success of the OrgPublisher rollout, Mary Kay’s leadership requested
proposals from Aquire on ways to streamline their succession planning
processes. Aquire was about to release a new product, Aquire Succession,
designed specifically for succession planning and presented it to Mary Kay.
Already familiar with Aquire and the value their OrgPublisher solution
brought to Mary Kay, a contract was signed to implement Aquire Succession
starting in February 2010.
Jennifer Long, Mary Kay’s program manager for succession planning, was
the Organizational Development partner for the Aquire Succession
implementation. Long, who coordinated the implementation with Mary
Kay’s HR Technology and Information Technology teams over a seven month
period in 2010, noted that any new software introduced into the Mary Kay
corporate headquarters must meet particular standards: it must be user
friendly, it must provide value across the entire organization and it has to
allow for custom Mary Kay corporate branding (or as Long called it: “We
have to ‘Mary Kay’-ize it for our users.”)
Challenge
For Mary Kay’s HR, succession planning had become a cumbersome process:
databases from two different vendors coupled with a manual data analysis
regime that included a patchwork of spreadsheets. And to make matters
worse, submitting succession data for a multibillion-dollar company was
handled via unsecured Outlook emails. Mary Kay knew their succession
planning process needed a complete makeover.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
22
Leadership Succession Planning
• Critical but in some ways intangible,
ambiguous, and nebulous.
• Wharton School of Finance Researchers
concluded that between 15-25% of the
variation in corporate profitability, on
average, is directly determined by the
character of their chief executives.
• Studies attempting to debunk the power of
leadership concluded that, at a minimum, it
must account for at least 7%-14% of
performance.
Source: http://www.familybusinessinstitute.com
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
23
Non-Profit Clients & Prospects
Sample Succession Plan
2. Plan Implementation
Association of Baltimore Area Grantmakers
Leadership Development and Emergency
Succession Plan
The Board of Directors authorizes the Board Chair to implement the terms of
this emergency succession plan in the event of a planned or unplanned
temporary or short-term absence.
1. Rationale
The executive director position in a nonprofit organization is a central
element in the organization's success. Therefore, insuring that the functions
of the executive director are well understood and even shared among senior
staff and volunteer leaders is important for safeguarding the organization
against unplanned and unexpected change. This kind of risk management is
equally helpful in facilitating a smooth leadership transition when it is
predictable and planned.
This document outlines a leadership development and emergency
succession plan for the Association of Baltimore Area Grantmakers. This
plan reflects ABAG's Executive Succession Policy and its commitment to
sustaining a healthy functioning organization. The purpose of this plan is to
insure that the organization's leadership has adequate information and a
strategy to effectively
manage ABAG in the event the executive director is unable to fulfill her
duties.
• It is the responsibility of the Executive Director to inform the Board of
Directors of a planned temporary or short-term absence, and to plan
accordingly.
• It is the responsibility of the Strategic Initiatives Director to immediately
inform the Board Chair of an unplanned temporary or short-term absence.
• As soon as feasible, following notification of an unplanned temporary or
short-term absence, the Board President shall convene an Executive
Committee meeting to affirm the procedures prescribed in this plan, or to
modify them if needed.
3. Priority Functions of the Executive Director at ABAG
The full Executive Director position description is attached to this plan.
Among the duties listed in the position description, the following are
considered to be the key functions of the Executive Director and have a
corresponding temporary staffing strategy (see Section #3 for further
guidance about temporary staffing)
http://www.arts.texas.gov/wp-content/uploads/2012/05/sample_succession_plan.pdf
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
24
Intangible Capital
A. Human Capital
B. Relationship Capital
• Skills
• Experience
• Managerial Value
•
•
•
•
•
C. Structural Capital
D. Strategic Capital
•
•
•
•
• Business Model
• External Trends/Conditions
Intellectual Property
Systems
Processes
Captured Knowledge
Reputation
Brands
Partners
Vendors
Clients
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
25
Business Cycle 1
• The 2008 Financial Crisis was not a typical
business cycle trough industries have
contracted from a financial and human capital
perspective.
• Lower valuations in the current market cycle
because slower economy, less sales/profits,
warrants a lower multiple.
• Discounts can be arbitrarily applied.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
26
A Case Study
• Grow through acquisition:
practice’s value is in its cash flow and the goodwill of its clients—
not the bricks and mortar that provide the far more tangible
collateral for other types of business loans.
• A case study:
Broker Thomas J. Curtis recounts the struggle of trying to close on
under $5 million in financing with a bank in the Tucson, Ariz.,
region that would allow him and a partner to buy the Raymond
James Financial Services practice of a colleague. The two-and-ahalf year process had the predictable twists and turns that
accompany large lending applications, with the bank rejecting him
at one point but six months later inviting him to reapply. The long
slog ended in failure last winter when the bank turned him down a
second time following an unfavorable appraisal.
The good news—in July, Curtis was able to close on financing with
another bank, just within 45 days of applying. The bank
understood their business better than the predecessor, he says.
“’Buildings and equipment don’t make loan payments; cash flow
makes loan payments,’” Curtis recalls the lending officer telling him.
27
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
Business Cycle 2
• Behavioral Finance: Anchoring is a cognitive bias that
describes the common human tendency to rely too
heavily on the first piece of information offered (the
“anchor”)when making decisions.
• Supply & Demand: More advisors want to exit (supply)
vs. qualified successors and buyers (demand).
• Markets are inefficient due to investors’ physiological
biases. We believe that talented investors can add
long-term value by understanding and using this
inefficiency.
“2008 almost killed me.“
– 2013 Blue Ocean National Survey
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
28
Advisors Don’t Know How
Much Their Firms are Worth
•
According to a preliminary finding from IN
Adviser Solutions' first-ever study of
Succession Planning in the financial advisory
business,
three-quarters
have
never
conducted a formal evaluation to nail down
the value; not being managed as actual
businesses
•
74% have indicated that they have never
conducted a formal third-party evaluation of
their firm
•
Most financial advisers — who earn a living
advising on the net-worth and assets of
others — are not truly aware of the value of
their own firms (and quite possibly their
largest and most valuable personal asset.)
http://www.investmentnews.com/article/20120223/BLOG03/120229967
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
29
Understanding Valuation
1. Income approach
• Capitalization of cash flow
• DCF
2. Market approach
• Public company
• M&A
3. Cost-based approach
“Intelligent people
make bad decisions
based on
opportunity costs.”
-Charles Munger
http://www.quora.com/Charlie-Munger/What-is-so-great-about-Charlie-Munger#
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
30
Key Valuation Points
1. Not all practices are created equally.
2. Future expectations dictate value.
3. No value for what is not transferable.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
31
Profitability and Productivity
Profitability Ratios
• Gross profit margin
• Operating profit margin
• Pretax profit margin
• Net margin
• EBIT margin
• EBITDA margin
Productivity Ratios
•
•
•
•
•
•
Number of clients per staff
Number of clients per professional
Assets under management per staff
AUM per professional
Revenue per staff
Revenue per professional
•
•
•
•
•
•
AUM per client
AUM per active client
Revenue per client
Revenue per active client
Operational profit per client
Operational profit per active client
Tibergien, Mark C., and Owen Dahl. “How To Value, Buy, Or Sell A Financial Advisory Practice”. Princeton,
New Jersey: Bloomberg Press, 2006.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
32
Advisory Practice Example
2012
% of Revenue
2013
% of Revenue
Revenue
$1,773,000
100%
$1,914,000
100%
Direct Expenses
$748,000
42%
$928,000
48%
Gross Profit
$1,025,000
58%
$986,000
52%
Overhead Expense
$632,000
36%
$689,000
36%
Operating Profit
$393,000
22%
$297,000
16%
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
33
Practice Valuation Methodology
Component
-
=
x
=
Description
Trailing 12 months of income generated by the practice. If buyers are only
Production
interested in acquiring fee business, any commission revenue might be excluded
from the valuation
All salary and salary-related costs like benefits and insurance-aside from any staff
working for the practice. The salary paid to the practice owner must also be
Compensation Expenses
included in this component. Compensation should not represent more than 75% of
total expenses.
All cost not related to salaries are included here. These include technology costs,
Non-compensation
operating cost(e.g. custody, reconciliation), office rent, marketing fees and sales
Expenses
materials, consultant fees, travel expenses, etc.
Normalized earnings should b 30% or higher of total production. This earnings
Normalized earnings
measure is taken as the basis for calculating the practice valuation.
The practice value is determined as a multiple of normalized earnings. The typical
multiplier is between five and nine times normalized earnings, depending on
Valuation multiplier qualitative factors such as the growth rate of the practice, average tenure, and age
of clients. The bulk of practices would be valued with around six-and-a-half to seven
times normalized earnings.
Practice value
Source: Alte Group Analysis, M&A consultants, Buyers
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
34
Linking your Business Plan
to a Succession Plan
• A business plan is not a substitute for a succession plan.
The two plans are complementary.
• Protecting your equity and wealth necessitates a
succession and contingency planning component.
• Personal goals and vision should align with business
objectives.
• A plan without details (such as dates, objectives, and
stakeholders) can be hubristic.
“Plans are nothing; planning is everything.”
-Dwight D. Eisenhower[1890 -1969]
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
35
M&A Databases
• IBA market database
• Done Deals
• Bizcomps
• Pratt’s Stats
• Shannon Pratt’s Control Premium Study
• Mergerstat
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
36
Discount vs. Premium
Discount
•
•
•
•
Reliance on one key shareholder
The average practice is smaller than a ‘micro-cap’ company
Mixed productivity results
Absence of non-compete or non-solicitation agreements
Premium
• Recurring revenue stream
• A high-net-worth client base
• Above-average financial performance
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
37
What Is Driving Consolidation?
1. Rising costs among financial firms are causing them to
seek economies of scale.
2. Rising demand among wealthy individuals for
financial advisers makes the business appealing to banks,
accounting firms, financial buyers, and large financial
firms.
3. Owners of practices on average are getting older and
becoming interested in liquidity through the sale of all
or some of their business.
4. In very few communities does one financial-advisory
firm dominate the market, making this opportunity to
compete even more viable.
Tibergien, Mark C., and Owen Dahl. “How To Value, Buy, Or Sell A Financial Advisory Practice”. Princeton, New Jersey: Bloomberg Press, 2006.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
38
The Case for Succession Planning
Context and Options Today
“As a principle-centered person you try to stand apart from the emotion of the
situation and from other factors that would act on you, and evaluate the options.”
-Stephen R. Covey
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
39
US Demographics
• The numbers tell the story: in 1900, Americans between
the ages of 65 and 90 comprised a mere 6% of the U.S.
population, but by 2050 this group is projected to
comprise nearly 24% of the population.
• The number of Americans age 65 and older is expected to
more than double, from roughly 40 million people today
to 89 million people by 2050.
• With 10,000 U.S. residents retiring daily over the next 17
years require expanding social and economic
consequences.
http://www.pewresearch.org/daily-number/baby-boomers-retire/
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
40
Demographic Context 1
Maisonneuve, Virginie. “Aging gracefully: What the West can learn from Japan”. Schroders
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
41
Demographic Context 2
Maisonneuve, Virginie. “Aging gracefully: What the West can learn from Japan”. Schroders
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
42
Financial Advisor Demographics
• Average age of a financial advisor is 50+.
• 10% are 60 and older.
• More than 40% will transition their practices over
the next 15 years.
• Of the advisors who are within two years of
retirement age, more than half do not have a
written succession or contingency plan.
http://adage.com/section/american-demographics/195
NFP Advisor Services Group. “The Efficient Frontier of Succession: Maximizing Practice Value”. May 2012.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
43
A Fragmented Industry
FA with bank-affiliated
broker/dealer
9%
FA with online brokerage
firm
5%
FA with insuranceaffiliated broker/dealer
11%
FA with independent
broker/dealer
23%
Wirehouse FA
16%
FA with other self-clearing
firm
19%
Independent RIA
17%
NFP Advisor Services Group. “The Efficient Frontier of Succession: Maximizing Practice Value”. May 2012.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
44
A Fragmented Industry
Percentage of Advisors by Provider
>$250K
>$750K
All
70%
61%
60%
50%
41%
40%
35%
29%
30%
25%
23%
20%
9% 10%
10%
13%
15%
1% 1% 3%
12%
2% 1%
11%
8%
0% 0% 0%
0%
Small
Bank
Independent
Insurance
Local
Regional
Wirehouse
Source: Recruiting Trends Survey, Discovery Database, April 2009
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
45
Target Time for Transitioning Practice to a
Successor By Status
19%
23%
Succesion plan in place which could be executed right
away (n=71)
46%
45%
3%
Succession plan in place but additional work required
(n=13)
5%
I don’t know the timing
4%
In more than 10 years
13%
In 3 to 10 years
In 2 years or less
78%
72%
No succession plan in place (n=144)
50%
42%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Source: Aite Group survey of 228 practice owners, March 2012
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
46
Barriers to Planning
•
•
•
•
•
•
•
•
•
•
Identity
Lifestyle
Daily personal gratification
A sense of immortality
Desire to remain in control
Ego
Lack of trust in a potential successor
Fear of retirement boredom
Lack of options
Time
“Picking a successor. Everyone one likes to pick themselves.”
-2013 Blue Ocean National Survey
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
47
The Aging Advisors
• Advisors
may
experience
unforeseen
consequences down the road if they don't
address key business issues such as the aging of
their clients, continuity planning, and building
scale.
• An aRIA paper reveals that 50% or RIAs are now
50 or older while 48% of the independent
contractors who work with an independent
broker/dealer(IBD) are in that age group. The
average age of the independent owner is 55,
and increasing. At the same time, 80% of RIA
clients and 72% of clients in the IBD world are
north of 50.
• Advisors are aging, and the clients of advisors
are aging along with them. Left unaddressed,
this creates the perfect storm of opportunity
and uncertainty. Add to this the fact that most
advisors do not have a succession plan, and
even if they do, they fail to realize that their
plan is not the same thing as a plan to sell, and
you have major looming issues.
http://www.financial-planning.com/news/aging-advisors-clients-make-succession-planning-difficult-2680894-1.html
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
48
Risk to the Independent Advisor
• More than 100,000, and 1/3 of the advisory aggregate
advisory population in the U.S. are part of the
independent channel.
• This group represents $1.8 trillion in client capital.
• There is no correlation between the number of years
to exit and succession planning design.
• With less internal succession options, this group, on
the whole, lacks proactive succession and contingency
planning focus.
Financial Network Investment Corporation. “Elite Advisors’ Strategies for Succession Planning”.
http://www.ceteraadvisornetworks.com/thought-leadership/white-papers/succession-planning.html.2011.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
49
The Talent Shortage
• 5% of the existing 316,000 U.S. financial advisors
under age 30.
• Profession is expected to expand by 32%, 66,400
advisors, over the next decade, according to the
Bureau of Labor Statistics.
• Why the industry is expanding
-Decline of DB plans
-Baby boomer population
-Growing proportion of financial empowerment
• Unique discussion points
-Entry into the business
-Young advisors support/service role
-Lack of ownership ambition
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
50
A Talent Shortage Looms As the Industry Booms
•
The millions of baby boomers retiring or planning
their retirement — also is threatening the financial
advisory sector with a talent shortage.
• The result could hurt advisers as they try to meet
growth targets for their firms, as well as make
succession plans.
• A 2011 survey by Cerulli Associates Inc. showed that
22% of advisers were below 40 and only 5% were
younger than 30. The average age of advisers was 49.6,
up one year from 2010. The average for wirehouse
advisers was 50.6
•
The total number of advisers fell to 320,378 in
2010, from 334,919 in 2004 — a 4.3% decline,
according to Cerulli.
•
A report by the Bureau of Labor Statistics shows
that the number of jobs for personal financial
advisers is projected to grow by 66,400 by 2020,
a 32% increase that is far larger than the 14%
average growth rate for all occupations.
http://www.investmentnews.com/article/20120429/REG/304299986
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
51
One Of The Fastest-Growing Careers Is
In Desperate Need Of Young Talent
• Despite the report about job cuts on Wall Street or yet another hedge fund struggling
to beat the market, there’s one financial job that’s remained secure and increasingly
relevant in today’s market: the financial advisor.
• There’s a great shortage of young talent in the financial advisory world:
(1) Less than 5% of the existing 316,000 financial advisors in the country are under age 30,
according to Cerulli Associates.
(2) Existing advisors are on the path toward retirement themselves and looking for
younger FAs to take on their books of business.
http://www.forbes.com/sites/halahtouryalai/2012/08/08/one-of-the-fastest-growing-careers-is-in-desperate-need-of-youngtalent/?utm_campaign=forbestwittersf&utm_source=twitter&utm_medium=social
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
52
Why are there so few
young financial planners?
• The War for Talent
-Financial and Human Capital Contraction
-Zero sum game
-Industry consolidation – MSSB, Bank of America
• Inadequate Development Programs
• Perception of top finance grads
• Lack of Mentorship
• Economics
Wells Fargo
Lehman Brothers
Bear Sterns
Morgan Stanley Smith Barney
Merrill Lynch
Etc…
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
53
Why the kids don’t want to be financial advisor
•
As an industry, the financial advisory business is relatively young. But its practitioners aren’t.
•
Cerulli Associates recently threw out some numbers to chew on––the average age of financial advisors is a
shade under 49 years, and about 14% of its workforce are north of 60 years. More important, less than 25%
of all advisors are ages 40 and younger. And one final number to consider: Just 5.6% of advisors are ages 30
or younger.
•
The industry needs new blood to replenish itself at a time when aging baby boomer clients will be putting
greater demands on their advisors (many of whom themselves will be shifting into retirement mode). But
an influx of reinforcements doesn’t seem to be happening.
http://www.csmonitor.com/Business/The-Reformed-Broker/2010/0829/Why-the-kids-don-t-want-to-be-financial-advisors
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
54
Older Advisors Driving Young Out Of The Business
• Among young, "next gen" advisors, the quit rate is increasing "by
orders of magnitude,” It is estimated that the rate at which
younger people are leaving the business is about 25%, and more
than half of these young professionals are looking to transfer
into another line of work.
• The upshot is that many older advisors will have no one to
transfer their businesses to and will instead be forced to let
them die: about 12,000 to 16,000 of the 315,000 advisors and
brokers currently working will retire every year for the next
decade.
• Do the math: the advisory business will need 237,000 new
advisors in the next ten years to maintain its current number.
Currently, only 21% of existing advisors are under 40 years old
and only 5% are under 30.
http://www.fa-mag.com/news/tibergien-old-advisors-driving-young-out-of-the-business-10936.html
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
55
Organic and Inorganic Human Capital
• Many business owners, across industries, spend
considerable time and energy thinking about the right
mix of support, generalists, and experts.
• Building a team of experts can be expensive in terms of
time and money.
• Retaining and identifying replacements can seem next to
impossible. Larger investment advisory firms have had
success with specialization:
-Exit Strategy and Insurance
-Retirement
-Financial and Estate Planning
-Investment Management
http://live.surveyshack.com/blog/bid/48309/How-Training-Needs-AnalysisCan-Be-Used-for-Succession-Planning
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
56
Practice vs. Firm
• No one size fits all.
• As a practice, addressing human capital needs is
critical.
• A firm is more likely to have created an organic
succession plan and can be staffed by multiple
advisors .
• A sad anecdote: bringing my spouse out of
retirement.
• Key difference: owner dependency.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
57
No Standard Firm
Partner
Senior Adviser
Financial planner
Senior Analyst
Analyst
Tibergien, Mark C., and Owen Dahl. “How To Value, Buy, Or Sell A Financial Advisory Practice”. Princeton, New Jersey: Bloomberg Press, 2006.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
58
Advisors: Don’t Run Your Business Like an ATM
•
A large majority of independent advisory firms will see their
business value stagnate just as they near the point they want
to exit the business, says the Alliance for RIAs (aRIA), a
confederation of six RIA firms that brands itself an advisor
think tank and offers business growth consulting.
•
aRIA warns that most advisors fall into the “annuity trap” of
treating their business primarily as a source of current
income rather than building “real enterprise value.”
•
Building value in a business requires addressing long-term
structural issues, but “advisors are usually not emotionally or
philosophically willing to address business structure issues
proactively,” say the aRIA advisors.
•
To avoid the long-term structural problems of a neglected
business, hazards including fee compression, erosion of
margins, recruitment challenges, low market valuation and
limited liquidity, aRIA advisors say advisors must build scale
and see their firm as surviving its owner’s exit from the
business.
http://www.advisorone.com/2012/11/12/advisors-dont-run-your-business-like-an-atm
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
59
Succession Plan Options
1. Sell to a financial institution
2. Sell to a like-minded advisor or peer
3. Internal succession
4. Partner with a succession firm
5. Take a hybrid role
6. Turn out the lights
7. Death/disability dissolve practice
Factors that vary with each option: Legacy, Control, Financing Blend, Retention, Valuation
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
60
The Case for Succession Planning
Implementing a Succession Plan
“What's money? A man is a success if he gets up in
the morning and goes to bed at night and in
between does what he wants to do.“
-Bob Dylan
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
61
Pre-planning Considerations
• Consider the impact of succession on your family and clients: What strategy will best
serve them and how will they react to a change in practice structure. This is critical
because clients consider the financial advisor and owner as the source of intellectual
capital, investment guidance, and peace of mind.
• Full time vs. Part time
• Internal vs. External Succession
• Valuation
• What is driving your evaluation process:
legacy vs. lifestyle vs. money?
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
62
Objective Due Diligence: Self-Assessment
• What do your clients value?
-wealth management approach
-investment performance
-overall level of service
-raconteur
-emotional support
• How did you acquire your clients?
• How did you build your financial services business?
• What is the break down of revenue sources?
• Did the clients choose you or your firm?
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
63
Due Diligence: Culture & Philosophy
• What is the buyer’s motivation for wanting to acquire my business?
• Are you just another transaction?
• What is the buyer’s capacity and infrastructure?
• Why is the acquiring/partnership firm selecting you? The importance of legacy.
• What latitude and control options are being offered to you?
• How will the succession firm substantiate your legacy or your clients, family, friends, and
the community at large?
• Will the sale or merger help me solve my internal management and client succession
plan or does it deflect the problem onto someone else?
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
64
Sage
“I may walk slowly, but I never walk backwards.”
– Abraham Lincoln [1809 - 1865]
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
65
Plan the Transition
• Get advice and perspective from mentors, friends, and
industry resources.
• Consider handing the practice over in several stages.
• Engage a partner firm with knowledge and experience you
trust.
• Develop a human capital plan.
• Streamline operations, technology, and infrastructure.
• Structure the Transaction.
• Establish a timeline.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
66
Begin the Transition
• Make a final decision on successor and partnership firm.
• Define implementation steps for operations, products, and
human capital.
• Finalize a comprehensive plan for how the transition will
be communicated to clients, employees, stakeholders, and
business partners.
“Success depends upon previous preparation, and without
such preparation there is sure to be failure.”
-Confucius [550 BC- 479 BC]
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
67
Client Perception
• Firm Structure
• Background & Reputation
• Technical Competency
• Identity & Vision
• Culture & Philosophy
“Buyers all say 1.5x 2x or some multiple. They just want to concentrate on the numbers.
Buyers focus on the cost. Sellers focus on the price. No one is focused on the client. How will
the clients transition?”
-2013 Blue Ocean National Survey
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
68
Implementation Challenges
• Client – Lack of trust in the new entity will inhibit
retention. Without proper due diligence by the
transitioning advisor, clients may end up in the wrong
hands.
• Advisor – Low retention will deteriorate purchase
price and negatively impact enterprise value.
• Successor – Without acute awareness, organization
will fall short of ROI.
• Remember: [S x E] T = R
[Strategy x Execution] Trust = Results.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
69
What was the most difficult aspect
of acquiring an existing practice?
Client retention
22%
Finding a suitable practice
22%
Implementing the transition
16%
Agreeng on valuation of the practice
11%
Financing the down payment
11%
Difficult financial markets
10%
Operations knowledge transfer
5%
Technology knowledge transfer
3%
0%
5%
10%
15%
20%
25%
Source: Aite Group survey of 228 practice owners, March 2012
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
70
Introduction to Clients
Meetings should be conducted similarly to how they have
always been conducted with each client. Document notes and
review with successor.
Three meeting plan:
1. Transitioning advisor informs clients and manages
expectations.
2. Introduce successor to client with transitioning advisors
leading the meeting. Offer ACAT
paperwork if client is agreeable and comfortable with the
transition.
3. Successor leads meeting with transitioning advisor present.
Obtain consent and sign paperwork.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
71
Innovative Solutions
• Dividing the practice.
• Difficult to find one “ideal” buyer.
• Clients can be divided in groups by type or geography, allowing an
advisor to be more opportunistic in planning an exit or succession
partnership.
• Partnership vs. Selling.
• What do you like vs. What are you good at?
• Retiring to an ambassador role may fit your personality and goals.
• Control and Flexibility.
• What would be the perfect situation for you?
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
72
Education & Resources
• Blue Ocean Global Wealth
blueoceanglobalwealth.com
• Private Client Services
www.privateclientservices.com
• Pershing Advisor Solutions
www.pershing.com/ria.html
• New Planner Recruiting
www.newplannerrecruiting.com
• RIA Match
www.riamatch.com/
• Industry Associations
–CFP Board
–CFA Institute
–FPA
–SFSP
–NAPFA
–RMA Risk Management Association
–SIA Securities Industry Association
www.cfp.net
www.cfainstitute.org
www.fpanet.org
www.financialpro.org
www.napfa.org
www.rmahq.org
www.siaonline.org
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
73
Conclusions
• A lack of succession planning is an
industry wide phenomenon.
• Current solutions are not addressing
this challenge.
• Solving the succession plan quandary will
make advisors more valuable to their clients
by addressing who will give the same advice
and support to these clients in the event
that their long-trusted advisor passes
suddenly.
• Begin the process early.
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
74
Questions and Follow-up
Marguerita M. Cheng, CFP®
Chief Executive Officer
301.502.5306
mcheng@blueoceanglobalwealth.com
Sameer S. Somal, CFA, CFP®
Chief Financial Officer
202.276.7589
ssomal@blueoceanglobalwealth.com
Scarlett Y. Che
Associate, Institutional Education Group
215.720.6473
sche@blueoceanglobalwealth.com
Cecilia X. Zhong
Associate, Institutional Education Group
202.739.1806
czhong@blueoceanglobalwealth.com
www.blueoceanglobalwealth.com
This presentation is for educational purposes only. Under no circumstances should the information provided herein be relied upon as investment advice.
75
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