Dr. Kevin Skipper, president and founder of Discipline Financial Management in Lexington, South Carolina, did everything right when he started his succession planning. He performed due diligence by researching various options and looked for synergies that would ensure a smooth transition for his clients and employees. Using a comprehensive screening process, Kevin interviewed several firms that met his strict criteria.
Our firm, Cornerstone Wealth, in Huntersville, North Carolina, started discussions with Kevin in early 2014, and a buy-sell agreement was signed in June 2015. Then, just five months later, tragedy struck when Kevin passed away unexpectedly at the age of 56.
We were in the early stages of our new arrangement and we, along with Kevin’s family, clients and staff, were devastated by his sudden passing. The loss of Kevin could have been the end of his successful life’s work, but thanks to his foresight, this was not the case. We proceeded with the agreement and integrated Kevin’s practice, including his wife and son, into the Cornerstone family.
Along the way, we learned some valuable lessons on what it takes to make a buy-sell agreement work, even under difficult conditions:
Start earlier than you think.
As Kevin’s experience shows, the time to start thinking about succession is well before you are forced for financial, personal or other reasons into a less than ideal situation. Do not underestimate the time it will take to identify a partner who is aligned with a common culture and investment philosophy, and who will care for your business with the same devotion you do. Many baby boomer advisors are starting to experience this dilemma as they look to retire. Researching your options well in advance puts you in a stronger position when negotiating with a potential buyer or partner.
Some estimates cite a 5-10% client attrition rate for every month that passes after the loss of a key advisor. With each month, your firm becomes less valuable and your leverage in negotiations weakens. With Kevin as sole advisor, Discipline Financial Management might have closed had a buy-sell agreement not already been in place.
Culture and personalities matter more than you realize.
Making sure your core values and work ethic match is more important than choosing a convenient match because of geography or service offerings. Cornerstone Wealth and Discipline Financial Management share a similar investment philosophy and service-oriented culture.