New Possibilities Opening Up For Independent Advisors

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A common scenario for financial service producers is to enter the business in order to have unlimited opportunity and control their own destiny.

As they become more successful, it becomes a mantra around which compromise is difficult. This is understandable. Many of us entered the business not because we were innately attracted to it, but because the alternatives seemed so limiting and “boxed in.”

So, while the learning curve in financial services is steep, the feeling of independence and opportunity is satisfying and ultimately rewarding for those who stick with it.

Many of us started with host organizations as part of a captive field force. It provided us with the initial training and eliminated the need to deploy capital which most of us didnt have available. Frequently, for successful producers, that relationship, while important, was also a source of tension. The perspective was that the company wasnt providing everything we needed and the very independence that we craved was cramped by the company imposing its will upon us.

As co-developer and former managing partner for M Financial Group, our premise was that a producer who chose to be independent could become more successful with a group of other like-minded independents than as a captive. In the early days, it was a leap of faith to join us. Twenty years later, these successful individual producers are part of a multi-faceted firm with multiple producers, professional staff, and several lines of business.

Now, given the size and presence of independent firms in the market, a different set of questions has emerged.

How do you continue to attract and select new talent, how do you create continuity, how do you provide transitions for older principals or those wanting to leave the firm? In addition, how do you take advantage of new opportunities such as acquiring another firm or starting a new line of business? Ultimately, how do you maximize distribution value and provide liquidity without breaking up the business?

Historically, access to capital for entrepreneurial firms has not been an easy proposition, nor is advice on the subject. If you were to go to an investment banking firm, it would generally not be interested. So, what do you do?

Selling the business in and of itself may not be a perfect answer. Few entrepreneurs have been successful selling their business to an institution and not finding themselves in a “death by razor cuts” situation culminating in their departure and a wind down of the business that they worked so hard to create.

Consolidators have tried to provide an answer, but the early generations have had problems. In some cases, sellers didnt have enough “skin” left in the game; buyers didnt provide leadership, deep management and synergistic infrastructures. Values tumbled, and people were disappointed.

Business is an iterative process, a natural progression of incremental improvements that reflect lessons learned and, in some cases, crack the code. Today, there is an interesting set of potential buyers and financial partners who are applying the lessons of the past and who provide opportunities for independent financial service providers.

Firms that want to consider those options and alternatives first need to try to get clear about what their own objectives and needs are and will be in the future. For example, we know we want to grow. Would access to capital accelerate that growth? If we had the opportunity to acquire another complementary business that would leverage our growth, what would it be, and who would it be?

Once a firm establishes a set of objectives, it can then look at alternative options. With proper assistance, it can build financial models, build term sheets, and complete due diligence. It is a process.

The important thing is to not only embrace change and opportunity but to chase it, if for no other reason than to broaden your business perspective. For example, the notion of many experienced producers is that young people arent entering the industry. This is false. They are entering the business for the same reasons we did, but simply not entering it the way we entered. They are and will compete with you.

The evolution of captive agents, brokers and the like who have become independent and gone on to build substantial firms demonstrates that there is an evolutionary next step.

I believe that access to capital is a key component to leveraging more rapid growth of independent firms in the future, and for the right firms, that is the evolutionary next step.

is president & CEO of Summerville Advisors, a financial services consulting firm located in Portland, Ore. He can be reached via e-mail at tspitzer

@summervilleadvisors.com


Reproduced from National Underwriter Life & Health/Financial Services Edition, September 23, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.