Next in Line

The first step was to take the emphasis off the founder of the firm, and make sure clients knew that Executive Financial Services was made up of not one, but four, competent, experienced planners who could assist them with their needs. One easy way to start the process was to change how everyone answered the phone. Instead of saying “Terry Siman’s office” as they had previously, the planners and four support staff members were instructed to say the name of the firm, “Executive Financial Services,” and then identify themselves.

In addition, each client was assigned a professional staff member as a primary contact. “Previously, Siman was the primary contact, and the rest of us supported his efforts. Now we [the professional staff] are the primary contacts, and the administrative people support our efforts,” says McIntyre. Clients are better served by the new structure, she says, because multiple staff members can help any given client.

Surprisingly, most clients were fairly mellow about the changes. “We presented it as a method to serve them better. We wanted them to know that we’re all of a professional caliber, and we’re all capable and qualified … but we also made sure they knew that everyone in the firm, including Terry, was available to them,” she says. Nobody had to go “cold turkey”; it was more a matter of gentle nudging. If a client assigned to McIntyre called and asked for Siman, for instance, the receptionist would say, “Is there something that Karen can help you with?” “Little by little, they started to realize, ‘Okay, I should be asking for Karen,’” says McIntyre. In an effort to delegate work, the firm has also taken this strategy a step further. If a client calls asking for a professional staff member, the support staff member will often say, “Is there something I can help you with?” “It may be that they need a check, or have an account to transfer in, so the administrative staff can help them with that,” says McIntyre. “It makes us all more efficient.”

Interestingly, in a recent survey where the firm’s clients were asked to identify their assigned associate, some clients listed their assigned planner, while others listed their assigned planner as well as Siman. The answers seem to vary based on how long the associate had been with the firm. “Since I’ve been here 10 years, more of my clients said that I was their only planner,” notes McIntyre.

Terms of the Deal

Now, you’re probably wondering: If there are three planners at the firm in addition to Siman, why is only one of them getting fitted to fill the founder’s shoes someday? Are the other two huddling in the break room, scowling about being left out of the loop?

Actually, they’re not. “One is fairly young, and is interested in increasing his current earnings more than investing in the business,” says McIntyre. “When you’re 30 years old, it’s kind of hard to know what you want to do with the rest of your life.” And the other is a relative newcomer to the firm, and isn’t yet comfortable making such a long-term commitment.

Yet even without associates’ competing egos or goals to deal with, Siman and McIntyre still have their hands full in figuring out how to structure the succession plan.

When it comes to priorities, Siman’s primary goal is to keep it simple: no complex structures or formulas. He also favors receiving a gradually diminishing income stream as he phases out of the business. “He doesn’t want his income to be reduced suddenly to nothing,” says McIntyre.

McIntyre’s top priority, by contrast, is to make sure that the firm still has value after Siman is out of the picture, or indeed even as he is receding from the picture. No one wants to pay full price for a 100-client firm only to have it morph into a 50-client firm three days after purchase. “I don’t want clients to leave and then have to worry about how to pay for the purchase of the firm,” she says.

Fortunately, their priorities–Siman’s wish for a gradually decreasing income stream and McIntyre’s concerns about client retention–are both accomplished by a plan in which Siman phases out of the firm over time, rather than riding off into the sunset on his golf cart and never looking back. “My feeling is that purchasing equity over time, with Terry moving into an ‘of counsel’ role–where clients know he is still involved to some degree–is in my best interest, and fits well with his needs, too,” says McIntyre.

Still, there are other issues. For instance, how will the value of the firm be determined? How will McIntyre pay for the firm? Over what time period will she pay for it? How long will Siman’s “phasing-out” period last? The two planners are still ironing out these details. To place a price tag on the firm, they’re considering valuing it based on a multiple of annual net income. Another option is for McIntyre to “buy” a certain number of clients each year over a period of time. “Let’s say I wanted to buy 10 clients and their total fees for one year were $100,000,” she says. “I would then pay one year’s worth of fees–$100,000–over a five- or ten-year period.” Incidentally, they have opted not to consult an outside valuation firm. “We’re both financially savvy, and I think having an internal buyout is very different from marketing the firm to the public,” she says. “It allows you a broader range of alternatives.”

As far as how McIntyre will pay for the firm, the planners considered establishing an employee stock purchase plan, “but that was a little too complex for us, frankly,” she says with a laugh, adding that it would probably be more appropriate for a larger firm where there would be more employees participating in the ESPP. Other alternatives include purchasing shares of the firm with part of her salary or cash, or, if the firm establishes a program in which planners earn bonuses for bringing in new business, funding the buyout with that additional compensation. Though no arrangements have been finalized, “I would say that purchasing equity via bonuses and part of my salary is probably most attractive to me,” she says.

At present, none of the planners receive compensation for bringing in new business, but that may change once they take on more marketing responsibilities, says McIntyre. “Up to this point, the principal has had sole responsibility for new business generation, but we decided to change that,” she says. “It’s still a work in progress, though–we’ve not yet identified how to structure that program.” They’ll also have to decide how, or if, to change the company’s fee-sharing arrangement with a local accounting firm; a portion of fees from clients referred to the accounting firm is currently sent to the firm, not one specific planner.

It can be hard for business owners to consider what will happen to their firms after they’re no longer a part of them; it can also be hard to be the one to bring up the subject. The results, however, are worth it: the owner or his family receives compensation for his years of work, his long-time clients are assured continued service by someone he trusts, and the principal-on-deck has tangible reasons to invest time and energy in the success of the firm right away. It may be an awkward conversation–but hey, at least it’s not as bad as, “Hello, honey? You know, I never thought I looked good in stripes, but these prison uniforms aren’t half bad…”