Dr. Kevin Skipper, president and founder of Discipline Financial Management in Lexington, South Carolina, did everything right when he started his succession planning. He performed due diligence by researching various options and looked for synergies that would ensure a smooth transition for his clients and employees. Using a comprehensive screening process, Kevin interviewed several firms that met his strict criteria.
Our firm, Cornerstone Wealth, in Huntersville, North Carolina, started discussions with Kevin in early 2014, and a buy-sell agreement was signed in June 2015. Then, just five months later, tragedy struck when Kevin passed away unexpectedly at the age of 56.
We were in the early stages of our new arrangement and we, along with Kevin’s family, clients and staff, were devastated by his sudden passing. The loss of Kevin could have been the end of his successful life’s work, but thanks to his foresight, this was not the case. We proceeded with the agreement and integrated Kevin’s practice, including his wife and son, into the Cornerstone family.
Along the way, we learned some valuable lessons on what it takes to make a buy-sell agreement work, even under difficult conditions:
Start earlier than you think.
As Kevin’s experience shows, the time to start thinking about succession is well before you are forced for financial, personal or other reasons into a less than ideal situation. Do not underestimate the time it will take to identify a partner who is aligned with a common culture and investment philosophy, and who will care for your business with the same devotion you do. Many baby boomer advisors are starting to experience this dilemma as they look to retire. Researching your options well in advance puts you in a stronger position when negotiating with a potential buyer or partner.
Some estimates cite a 5-10% client attrition rate for every month that passes after the loss of a key advisor. With each month, your firm becomes less valuable and your leverage in negotiations weakens. With Kevin as sole advisor, Discipline Financial Management might have closed had a buy-sell agreement not already been in place.
Culture and personalities matter more than you realize.
Making sure your core values and work ethic match is more important than choosing a convenient match because of geography or service offerings. Cornerstone Wealth and Discipline Financial Management share a similar investment philosophy and service-oriented culture.
“Kevin’s passing left an emotional void, but also a financial one, as ours was a family-owned business, and Kevin was the lead advisor,” says Audrey Skipper, Kevin’s widow and client services associate at Cornerstone Wealth. “The entire Cornerstone team showed genuine compassion and kindness during this difficult time. Our similar attitudes toward serving clients and putting people first played an instrumental role in making this unexpected transition as seamless as possible for our staff and clients of 20-plus years.”
Determine your “must have” criteria in a partner.
For Discipline Financial Management, finding a firm that used the same custodian was essential for minimizing disruptions to clients. Advisors often discount the administrative and regulatory headaches that accompany a change in ownership, but selecting a partner who employs similar processes and clearing systems can make the transition go more smoothly for all parties.
Another essential condition for Kevin’s firm was that the new firm be able to easily absorb his book of business. Consider carefully the size of the firm you are considering. Is it large enough to handle your accounts without your clients becoming lost in a massive, bureaucratic structure? Kevin realized that only firms of a certain size could handle Discipline Financial Management’s 280 clients and over $100 million in assets with the care and attention that his clients had come to expect.
Prepare clients and employees for the transition well in advance.
Our buy-sell agreement was still in its early stages at the time of Kevin’s passing, and many of his clients were unaware of the new arrangement. “It was a very emotional and shocking time for the staff and clients. However, the advisors at Cornerstone Wealth were extremely empathic and professional in informing our clients and working with our staff in an efficient and timely manner,” Audrey says.
Cornerstone held individual meetings as well as several group luncheons to introduce Kevin’s clients to our team. It was important that they knew Cornerstone would continue Kevin’s legacy of personal attention, professional integrity and solid financial advice.
Audrey notes, “Kevin was proud of his successful practice and the many lives he helped through his work, but he was starting to feel the strain of keeping up with the demands of a thriving business. In hindsight, I wish we had started the succession planning process sooner. Merging with a larger firm with experienced advisors and strong support staff would have greatly reduced the stress in my husband’s life while increasing his ability to enjoy life and the fruits of his success.”