Having a Partner is Not Necessarily a Viable Succession PlanHaving a Partner is Not Necessarily a Viable Succession Plan

When it comes to succession planning, one of the most common misconceptions we see is “I have a partner in the business. The future of my firm and clients is protected”.

We have seen multiple scenarios where the partnership dynamics and circumstances may call for new solutions. Below is one such real life example featuring a founder duo; we’ll call them Joe and Bob*.

Joe and Bob started their RIA in 1995 and built it into a boutique wealth management firm managing $200MM for 125 HNW clients in Boston. Joe is a CFP and before starting the firm, was a practicing attorney serving on the boards of various non-profits. Bob was a wealth advisor with a regional bank. They had compatible personalities, complementary skills and worked extremely well together.

After almost 20 years of success, the duo was at a crossroad regarding their futures. Joe was looking to retire and spend more time with his family, while Bob felt he had a few more years to go before he hit the golf course full time. The only other member of the firm was their administrative assistant. Joe & Bob had Key Man Life Insurance; they also had buy/sell agreements with each other where each partner would buy the other out if the unforeseen happened. But given their different expectations from the future, they both knew they needed to rethink their plan. 

Joe wanted to monetize his value in their RIA, but Bob, who was the same age as Joe, was not the right buyer. In fact, Bob would also be a seller in the near future. Sale to a bank would have decimated the legacy they had built together. Moreover, Bob did not want to regress by going back to the “conflicted” environment he had left behind twenty years ago. And most important of all, they needed a solution where their clients would be taken care of in a similar fashion as at the current firm. Bob also knew that while he wanted to continue running the firm, he could not do it by himself.

Joe & Bob proactively spoke to the relationship lead at their custodian, who introduced them to Eric who ran a large wealth management firm in Boston. The firms served a similar client base and had similar investment and client service styles. Eric and his partners had access to capital through a holding company. They were able to provide liquidity to both Joe and Bob. Joe could move to Naples and be available on an “as needed” basis by phone for the next year.

Bob joined the larger firm where he could serve the long-term best interests of their clients. He gets to spend the next few years doing what he loves while all other aspects of the business are handled by others. Bob has complete control of his retirement timeline. Best of all, Joe continues to refer clients to Eric and receives a stream of referral fees.

What can we learn from Joe and Bob’s experience?

*All names and locations have been changed to protect privacy

Rajini Kodialam is the co-founder of Focus Financial Partners LLC.