It’s often educational to skip a conference for a year or two; it makes the changes stand out more. This year’s FPA NexGen Conference, held at the end of July at St. John’s University in Minnesota, was a perfect example. I’ve been actively involved with NexGen advisors, the forming of their virtual organization, their chat boards, and the creation of the NexGen Conference in conjunction with the FPA. But as my consulting business has taken off, I didn’t make it last year.
What I found was a gathering so different from the one I last attended that I wouldn’t have been surprised to learn I was at the wrong conference. For one thing, some 80% of the attendees came for the first time, so I didn’t know most of the folks there. Then too, the old people didn’t show up–er, I mean, there weren’t nearly as many “established” financial advisors who attended. But most striking, the NexGen advisors seemed to be more sophisticated, more knowledgeable, making comments and asking questions about technical planning issues and practice management that I wasn’t always sure I knew the answers to.
There was something else, another tone to their questions that I picked up on right away, but couldn’t quite put my finger on. Then it hit me: These NexGeners weren’t worried about how to approach their owners about how to get a partnership interest in their firms as they were two years earlier; now, they are partners or prospective partners, concerned about the best ways to structure, evaluate, negotiate, and finance their equity stakes; how to decide if they even want to be partners at all; and looking to find the best ways to build equity for their retirement.
Granted, in most cases, we’re not talking about a big partnership stake–2% or less in many firms, and perhaps a bit more than that in smaller practices. Yet if the attendees were at all representative of the current status of young advisors (my work and anecdotal research tells me that they are), in two short years, Next Generation advisors have taken a quantum step in their careers–from employees to part-owners–and the independent advisory industry has made an even larger leap from one- and two-person shops to professional practices that can train and groom their successors internally, with the potential to grow far beyond the abilities and life spans of their founders.
Why It Matters
One can’t really overstate the impact that firm ownership, however small, has on a young financial advisor. Probably for the first time in their lives, they have more than just a job. I suspect that many older advisors don’t truly grasp this distinction, in no small part due to the direction of their own careers. Historically, independent advisors typically started as stockbrokers or insurance agents (or at American Express Financial Advisors, now Ameriprise), where, although they technically might have been employees, the “entrepreneurial” culture made it very clear that their livelihoods and careers depended solely on their ability to attract their own clients (which once attracted, the firm was more than happy to claim both during and after their tenure with the firm).
An employee at most independent advisory firms is in a far different situation. At a typical firm, virtually all the client contact is handled by the partner(s). The employees function largely in support roles, handling the back office, planning, and investment work that can be done behind the scenes, with actual client presentations made by the advisor/owner(s). If the employee does have client contact, it’s usually in a clerical capacity (answer the phone, tracking down documents, solving problems), and that role is almost always subtly, but clearly, communicated to the client.
Recognizing Their Value to the Firm
It can take years for most young professionals to get the client contact and professional respect they thought they signed on for when they became financial planners, that the older generations (whether they deserved it or not) got virtually right out of the career box. One of the first steps on the path toward achieving those goals is the recognition of their value to the firm, their maturation as advisors, and their mentor’s commitment to them that comes with partnership, however small the actual ownership stake. At least psychologically, becoming a partner takes them out of their purely supporting role, and puts them on the starting team: Maybe not the shooting guard or the power forward, but no longer warming the bench, either.
This difference in attitude from employee to owner was nicely verbalized by one of the two NexGen advisors–Sara Bailey–on Mark Tibergien’s opening-day panel called “Straight Talk About Ownership.” “I do most of the same things that I did before I made partner,” Sara said. “But now I have more responsibility, which gives me more confidence, and more credibility, with the clients.”
It was a theme that was repeated by her co-panelist Jason McGarraugh and by many of the young advisors I talked to throughout the conference. In my work, too, I’ve witnessed the remarkable effect on a young professional when they begin to realize they no longer are working for the man, but are, in fact, becoming “the man” or woman.
The impact on an advisory firm itself is also quite remarkable when one or more of its young professionals is elevated to junior partnership status. The promotion often affects every one of the staff because the very nature of the firm has changed, probably forever. No longer is it a solo or mom-and-pop (or pop-and-pop) shop, with the rest of the staff in permanent supporting roles. From that point on, it’s at least possible for each and every member of the staff to become a partner in the firm. Sure, they might have to finish college and get their CFP, etc., but it could be done. Suddenly, the future at that firm is open to anyone who wants to make the effort.
Different From the Outside
What’s more, the addition of junior partners changes the appearance of the practice from both the owners’ and the clients’ perspectives. For owners, adding partners increases the potential for the firm to grow–particularly beyond the limitations of the current owner(s). If you can add one partner, you can at least in principle add more, with each new partner adding another multiple to the number of clients the firm can service. Moreover, younger owners also represent a succession plan for the senior partners: A ready and increasingly financially viable market for the balance of their equity when they choose to call it a day. The practice is no longer a glorified, albeit well-paying, job. It’s a business with a life, and a value, beyond the founding owners.
To its clients, and prospective clients, the advisory firm has substantially changed, too. It’s no longer a practice that will close its doors when the advisor retires: it’s now a firm, again, with at least the potential to continue servicing the clients after the founder no longer can or cares to do so. Even better, the successor isn’t some unknown pinch-hitter that the clients will have to make a quick decision about. Instead, it’s an advisor they’ve known for years, and watched grow up with the firm, almost like family. The younger partners are also more likely to form relationships with clients’ children (and their friends), greatly increasing the chances of transitioning the advisory practice into a multi-generational firm.
In Front of Our Very Eyes