da. They might be great employees, they might even be driving the growth in revenue and value of the business. But if they are, they are eventually going to ask themselves and hopefully their owners,“ Why am I growing someone else’ s net worth?” It’ s of course important that such employees get competitive salaries, but ownership opportunities offer them an additional layer of recognition and financial upside.
A strong equity structure is key here, since your firm can then secure the tenure and engagement of these talented professionals. These next-generation employees are going to help build wealth at the firm, and a good equity plan makes it less likely they will go out on their own.
Clients Like Multigenerational Teams
Clients want to feel confident that their service experience will extend beyond the career of their primary advisor. They seek stability, continuity and long-term relationships that span generations. This is one of the key reasons we see significantly higher net new client growth rates at multi-owner firms than we do at single-owner firms. A structured succession plan not only strengthens the firm’ s future but also reassures clients that their financial journey will be supported for decades to come. Without it, many clients hold back on referrals.
Such teams also make the leadership changes smoother.
While people in other industries often have a hard and fast retirement age, careers in financial services are more likely to wind down than simply end. When a firm has a diverse, multigenerational ownership team, it allows its older leaders to take that step back and find a gradual exit while younger team members step up and take the reins. The share of equity will then change according to the presence and contributions of stakeholders.
If there’ s a mechanism for a smooth ownership transition, the firm will be protected from any potential disruption caused by one owner’ s sudden exit. Those firms will be more sustainable, and their value won’ t hinge on any one individual.
Bringing In Established Advisors
If you have a strategy for assigning equity and adjusting the ownership teams, you’ ll also be better able to recruit experienced advisors who come with their own books of business already built. You’ ll be able to base their salary and equity share on the value of the clients they are bringing in and be better able to account for their contribution to overall firm assets.
External Succession Options
Data shows that multi-owner firms are more valuable than single-owner practices. And if these firms have a process for distributing equity to employees and a diverse ownership team, they’ ll find it easier to explore additional growth through external equity partnerships like a merger or a“ sell and stay” arrangement. Such a firm is more attractive to outside investors. And the structure makes it easier to
The equity plan, ownership agreements and corporate governance should be memorialized in writing to ensure clarity and continuity for future generations.
evaluate an owner’ s impact on the business and makes the integration of merging teams and operations easier.
The Blueprint For Success
Firm owners who want to build a wellstructured equity plan need to keep a few things in mind.
First, they need to define the goals for their succession plans, identifying the traits they desire in future owners and setting a vision for the firm’ s future. The plans should also offer clarity— meaning the firms should be able to communicate their equity opportunities to employees and set clear expectations for the performance and behavior of those they want to take a stake in their firms.
They should also offer guidance to these employees, nurturing talent by fostering a wider business perspective beyond their individual production. By creating an ownership mindset, they will show how business decisions affect a firm’ s long-term profitability.
To make sure its employees are compatible as stakeholders, a firm should start by giving them increased leadership responsibilities, along with some synthetic equity or a small initial equity stake during a trial period. This process should be gradual, allowing for a staged process of equity accumulation by new owners to ease transitions and make investments more accessible for them.
When it comes to compensating future owners, a firm should make clear the way role-based salaries differ from performance-based bonuses and profit sharing for equity ownership.
A transition plan also requires flexibility and documentation. Firms will often have to make adjustments to accommodate events in their partners’ or future partners’ lives, as well as be ready for accelerated investments. And the equity plan, ownership agreements and corporate governance should be memorialized in writing to ensure clarity and continuity for future generations.
It’ s also important to clearly communicate with clients, telling them how the firm will evolve into a multigenerational ownership team.
Securing Long-Term Success
Business ownership requires a commitment of time, energy and financial investment. But with a clear equity road map, firms can attract and retain top professionals, develop next-generation leaders, perpetuate the ownership cycle and accelerate growth.
By taking these steps today, you’ ll position your firm for long-term success— while building a legacy that lasts for generations.
SCOTT LEAK, CFP, CEPA, is senior consultant at FP Transitions.
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