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Spreading Equity, Creating Value
With a strong equity structure, advisory firms can keep their most talented professionals( and keep them engaged). By Scott Leak
OUR FIRM, FP TRANSITIONS, KEEPS A DATABASE on thousands of advisory firms, looking at data such as valuations. Our recent look into this data revealed a powerful truth: The most valuable firms are those that invest in next-generation talent. It’ s not just about hiring fresh faces; it’ s about creating future owners who will sustain and grow the firm for decades to come.
Without a structured compensation and succession plan that empowers rising leaders, even the most successful firms risk stagnation or decline.
The Power Of Equity Planning
Strategic equity planning is about more than just deciding who takes over when an owner retires. When you do it properly, it strengthens your firm today while also helping you build a sustainable and profitable future. A well-designed succession strategy ensures that top performers stay engaged, that leadership evolves seamlessly and that the business thrives across generations.
One of the firms in our database put a structured succession plan in place and saw its value soar from $ 2.3 million to $ 10 million in just 10 years. The firm had previously been underperforming across nearly every major performance indicator, but by bringing on second-generation owners and fostering a multigenerational team, it significantly improved its metrics. Now, it’ s in a good position to shift ownership to a third generation.
FP Transitions’ data consistently shows that firms prioritizing equity planning see exponential growth and achieve remarkable value increases. We expect even more smaller firms to follow suit in the coming years.
There are a few key reasons( beyond the subject of value) that you need a strong equity plan. Here are a few:
Talent Stays
If you have an equity structure that presents your employees with a clear path to firm ownership, you’ ll attract ambitious professionals who will want to be leaders. You’ ll also encourage them to develop an ownership mindset of their own and think beyond what they need to do to thrive individually. If they are thinking of themselves as owners, they’ ll be thinking longterm, because equity motivates them to invest in the firm’ s success, not just their own.
Those who don’ t own a stake in the company, by contrast, are going to have a different agen-
30 | FINANCIAL ADVISOR MAGAZINE | APRIL 2025 WWW. FA-MAG. COM