Cathy Pareto, who operates a solo practice in Coral Gables, Florida with the help of one assistant, says that during the 10 years she worked at another firm she saw too many practices with inadequate succession plans, or none at all. "Unfortunately a lot of my peers haven't thought about these things, or waited too long to think about them. I don't want to make that mistake," she explains, adding that when she launched her own firm she made a long-term exit strategy and solutions to short-term disaster scenarios part of her business plan.
"Even though I'm only 38 I get the question, 'What if something happens to you?' all the time from clients. I do have plans in place in the event of my untimely death where the clients would be taken care of and transitioned appropriately," she says.
In addition to having a written agreement with another firm in the Miami area to take on her clients in the event of some unforeseen calamity, she's also got her personal estate planning done. "But I'm still building a young business and a lot of the value, fortunately or unfortunately, is still on me," she notes. "It becomes a challenge in terms of extracting value or having some kind of a liquidity event for my heirs, but I'm fortunate in that I have time on my side."
The arrangement she has to transition her clients to another firm also calls for payment to her estate for the value of the business. At this point she hasn't taken any steps to place a value on her growing business. When Pareto was profiled in Investment Advisor in 2008 ("Miami Advice," October 2008) she had about $8 million in assets, which she reports has since risen to about $40 million.
"The bottom line is that this industry is obsessed with valuations, but it all boils down to relationships and the value of the relationship you have with the client," Pareto observes.