The financial services industry has experienced immense changes over the past forty years. The industry has moved from roughly 2,200 viable insurance companies to approximately 950, and has shifted from offering fixed products to a plethora of financial services. At one time financial products and services were primarily offered in separate silos in which banks did banking and accountants did tax work. However, the focus has changed leading to a blending of disciplines in which large agencies are bringing a multitude of offerings to the forefront. With these changes numerous opportunities have emerged for financial advisors and agency leaders are being forced to take a closer look at the strategic business model of their organization.

Over time, we have found that there are four options when it comes to choosing an appropriate business model. The first is to burry your head in the sand and struggle against the over impressive competition that brings multiple disciplines to the forefront. Next, is the option to partner with outside alliances that perform services you don’t. Third, is to build disciplines internally housing experts within your organization that focus on the wide array of services that your clients are in need of. The final, is a combination of options two and three building disciplines internally and forming alliances in such a delicate way that you’re not creating animosity to those that you are in partnership with. For us, the latter option of building disciplines internally while also forming relationships with alliances has been the most effective.

Our experience provides us with the wisdom to offer value to those we are in alliance with while also remaining out of competition with them. At the same time, we have chosen to take a comprehensive approach to helping clients build and protect their wealth. We have brought in a wide range of experienced and highly skilled specialists in multiple areas of expertise including a five person financial planning department, a team of business planning experts, attorneys, CPA’s, private equity advisors, as well as specialists in investments, risk management, and group employee benefits. These are highly credentialed and licensed professionals that are able to work on the front lines in developing a sound strategy in conjunction with a client’s own attorneys and CPA. The advantages for the client include sophisticated resources, and a team of experts all collaborating for one common goal which is the client’s financial security. Benefits to the advisor include the capability to offer multiple services in specialized areas therefore minimizing the opportunity for competitors to fulfill these needs while at the same time having the ability to control the quality of service delivered to each client.

An example that demonstrates the value in a business model with internally built disciplines and alliances is the following story involving a complex business succession case. A client of over 24 years who owned a manufacturing business with 60 employees passed away at 68 years old in 2009. The client did not have children but had two key employees that both owned small percentages of the business. The client’s widow who was 62 years old at the time had not been involved in the business for over 10 years but planned to implant herself back into the company expecting to draw the same compensation that her husband had. The widow had concerns about running the company at the same level of productivity and for herself in taking on the business at her age and came to us for options. We had been involved in the business planning needs of the company prior to the owners death and had helped set up many items including a Board of Advisors, key man policies on the two minority stock holders, financial planning, a group medical plan, a qualified plan, as well as orchestrating the ability for the key employees to own a percentage of the business.

Due to our familiarity and understanding of the dynamics of the business, we were able to bring in our Business Planning Director to rapidly design a sale to the key employees. We were able to get a high but reasonable valuation of the company and worked with the widow and her attorney to sell the business to the key employees for 10 million dollars on a 20 year note at a low federal interest rate. We then helped the widow place insurance on both of the new business owners in case anything should happen to them to ensure payment of the note. The results of this strategy were extremely favorable for all involved. The widow will receive the same income she expected from running the business ($500,000 annually) not subject to tax versus subject to ordinary income tax. The two key employees will not have an inclination to become competitors since they own the business. The key employees are paying a fair price at incredible terms for the business. There were multiple opportunities for the client’s advisor who will now be able to continue working with both the widow and new owners versus the possibility of losing the client.

In a time when the challenges for agencies and solo practitioners in the industry to remain competitive are greater exponentially every year, it is imperative to take a closer look at your business model. Questions to ask yourself include whether or not you are fulfilling all of your clients needs and if you are leaving opportunities open for outsiders to come in. Advisors should analyze options and choose the structure that allows them to expand their business while delivering the best financial strategies to those that they serve. Ensure that you will be positioned to differentiate yourself from competition and to operate your practice in a way that maximizes the opportunity to creatively enhance the lives of your clients for generations to come.