Forum Panelists Recount Transition Successes And Pitfalls

Hard work is justly rewarded, or so the saying goes. But as one speaker noted during a general session of the annual forum of the Society of Financial Service Professionals, held here late last month, hard work–and, in particular, a job well done–can have the opposite outcome.

During a panel discussion titled “Business Transition: Acquisition and Exit Strategies,” Jim Soressi, an attorney and second vice president at Guardian Life, New York, cited a situation involving two key employees who were angling to buy a financial service practice from the son of the firm’s deceased principal. Absent a buy-sell agreement with the son, he said, they could have inadvertently driven up the purchase price by boosting the value of the firm through new client acquisitions.

“The key employees were thinking, ‘If we do a bang-up job and increase revenue, we’ll end up paying more for the business,’ ” said Soressi. “ I’ve seen this situation at other practices. The principal who takes over does a great job, then has to pay more to a family member who’s sitting on the sidelines and enjoying the value increase.”

How to avoid such undesirable results and effectuate a smooth transfer of one’s practice took up the better part of the discussion. Among the key issues for several of the panelists was deciding when to transition themselves out of their practices and who to choose as a successor.

For Donald Haas, a financial planner and president of Haas Institute for Wealth & Aging, Birmingham, Mich., the process was eased by a fortuitous call from Mark Davis, a fellow panelist who had approached Haas in the 1990s to inquire whether Haas would serve as his mentor. Haas encouraged Davis to first get additional training and experience at an outside firm, and, some years later, hired Davis as a prot?g? and successor.

“Don helped me reach a plateau in my career probably 10 years earlier than I could have achieved on my own,” said Davis, a chartered financial consultant and vice president of Haas Financial Services Inc., Southfield, Mich. “And I helped Don make more money than he ever expected. We had, by a certain point, almost a father-and-son relationship. We were very close.”

Another who enjoyed a smooth succession was Benjamin Baldwin Jr., a certified financial planner and president of Baldwin Financial Systems Inc., Arlington Height, Ill., who transitioned much of the company’s clientele to his son and daughter. Several years after joining the father’s practice, the two adult children developed their own specialties or “silos,” handling new business while Baldwin increasingly limited his contact to older clients.

“My wife and kids never thought of me as being the boss,” said Baldwin. “At a certain point, I realized that it wasn’t about transitioning my business to them. That wasn’t the dynamic.”

Baldwin’s son, Benjamin Baldwin III, founded in 2003 a separate investment and wealth management firm, Responsive Financial Group, Rolling Meadows, Ill., after purchasing an independent investment advisory firm’s clientele from a then-retiring planner. Baldwin observed that integrating the acquired clients into his fee-only management platform could have been eased had it not been necessary to replace variable life contracts that were incompatible with the platform.