In 2008, when Jim Herrington, founder and chairman of San Mateo, Calif.-based Financial Services Network, had his first discussion with Daxs Stadjuhar about Stadjuhar Wealth Strategies (SWS) affiliating with the Network, neither knew at the moment that Herrington had found his next leader for the Network. Long considering how to best execute the vision for the Network's next phase-one built around "a team-led organization with the emphasis on the Network, not on me"-Herrington became so impressed with Stadjuhar, a former Army infantry officer who had joined his parents in SWS and helped it grow to 17 OSJ branch offices in eight states, that he offered him the role of Network president. The most surprised person of all was Stadjuhar's father, Ed, who founded SWS in 1987. "Daxs was the succession plan for SWS," says Herrington.
Six months later, Herrington gave Stadjuhar the expanded role of CEO. Two years later, the Network is growing beyond even Herrington's expectations-in 2008, Herrington developed a new five-year plan because the Network had already outgrown milestones in the 2005 five-year plan. Today, the Network has 188 advisors in 50 communities in 16 states; gross revenue will hit $38 million this year, and the "village" culture is still in place.
In a profession where the typical financial advisor is 55-plus, succession planning is a hot topic. Advising advisors on succession planning has become a cottage industry of its own, and there are plenty of war stories about mergers, acquisitions and exits gone wrong. So what is it about the Network's transition that has gone right?
Sharing The Vision, Reserving The Culture
If there's one thing that sets the Network apart from many other advisor groups (and it's not just size, although the Network is as big as some small broker-dealers) it's that Herrington and, later, Gordon Dunne, managing director, always "left the door open" for possibilities on a long-term vision. That's not to say that there wasn't plenty of business acumen applied; Herrington, after all, has both a B.S. and an MBA from Stanford. In its infancy in the early 1980s, the Network was a professional cluster for networking, study and sharing ideas. Herrington expected it would grow to no more than 25 advisors, including some attorneys and CPAs.
What Herrington calls the affirmation phase proved the need for an organization that positions itself between advisors and the broker-dealer, product sponsor firms and service suppliers, advocating on the advisors' behalf. Dunne's arrival in 1990 marked the beginning of the true business model stage, a tipping point that resulted in Herrington realizing he could no longer maintain his personal practice and continue managing the Network's growth. With nurturing culture and coaching others close to Herrington's heart, Dunne took over some management responsibilities, including the relationships with product sponsors. (Dunne is both particularly adept at those relationships and has the stamina for it-last year, he met with 170 product sponsor representatives.)
By 2005, the next transition point, the Network was at $25 million in annual revenues, the model supporting itself and realizing the economies of scale that come with size. Herrington's new plan called for an executive to come on board within several years, a timetable made more urgent by the Network's "perfect storm" phase-a change of broker-dealer (from FSC Securities to Associated Securities), the market collapse, the transition difficulties resulting from the stringent privacy requirements of Regulation S-P, and then Associated Securities' roll-up into its parent, LPL Financial.
Through it all, Herrington and Dunne were focused on strengthening the Network so that they would continue to be heavily involved, but without being vital for day-to-day operations. Enter Daxs Stadjuhar.
"When I talk about the transition, people always ask me, 'What's the financial deal you've put together?'" says Herrington. "The truth is, that's the last thing we're going to talk about, and we haven't gotten there yet. I wanted somebody who would take emotional and philosophical ownership of our concept of a community long before taking any financial ownership. We didn't approach this as a buy-in, nor is it about replacing people. A very important part of this transition process-and it is a long-term process-is allowing Daxs to develop the leadership team in a way that is best for the Network. It's also critically important that the culture we've carefully nurtured over the years feels the same. From the beginning, I thought of the Network like a family or a village, like the small town of Gridley, California, where I grew up-you knew exactly who to go to for help, support or a pep talk. That's the way it was when there were 12 of us in the Network and it's still that way with almost 200 of us."
For Stadjuhar, the transference of trust, values and relationships has been humbling. "My work has been all about getting out to advisors' offices and getting to know them," says Stadjuhar. "It's allowed me to have a feeling of ownership of the culture in a much different way than if I were just taking over tasks and responsibilities. I bring the perspective of having been an advisor myself. That's at the core-it's hard to be an advocate for advisors if you haven't been one. And I hope this doesn't sound hokey, but as a former military officer, I have an extremely high regard for legacy and tradition. Jim has been very generous in allowing me to care for the tradition as much as he has."
The mentoring and transitioning model that Herrington and Dunne have applied to the Network's new leader mirrors what succession planning consultant David Goad, ChFC, president of Succession Planning Consultants Inc., says is the new approach to a successful transition-in a word: client-centric. Internal successions are considered very low risk and client-centered, with far less change and uncertainty.
It's the major trend and the preferred option in the financial advisory space, according to Goad, whose firm was involved with 42 practice transitions in 2010, 78% of which were internal successions. The internal succession model has far less emphasis on the price and the terms. "In the Network's case, the clients are really the advisors," says Goad. "In an internal transition, a major element is transitioning the entire enterprise value through properly valuing shares or ownership units. But value is what advisors struggle with. Many of them put too much emphasis on 'accounts' and 'assets' and not enough on the secondary drivers of value-branding, culture, esprit de corps, vision, philosophy. Those are hard to put in documents. For a larger firm like the Network, the founder has a huge responsibility to mentor what the firm's culture really means. A top-tier organization can always go to the next level, and it's natural for the new leader to want to put his or her stamp on something. But the smart ones recognize that the reason a firm is top-tier is that something is already very right about the culture or the firm wouldn't be where it is."
Sandy Moll, a CFP licensee and one of Herrington's first recruits into the Network 25 years ago, along with her partner Jackie Mayer, says the transition to Stadjuhar as the new CEO has been seamless. Yet she was pleasantly surprised at some of the new ideas Stadjuhar brought in-weekly updates with details or clarification of compliance issues, e-mails with audio, information on new resources at LPL, special quarterly workshops concentrated on a single topic, and the greater use of technology for convenience, such as RSVPs to Network meetings. "These were things we didn't even know we needed," says Moll. "Here comes this young man with a military background and great organizational, leadership and technology skills who made some unexpected enhancements. My response to everything has been 'Wow, I really like that.' Jim is still, and always will be, the glue that holds us together. The Network really reflects his values, vision and integrity. You can't say that about every firm that's grown from ten people to almost 200."
Dunne says that the majority of advisors that join the Network are referred by current advisors. "They're very proud of the group and feel that another advisor joining doesn't dilute, but rather adds to, the shared experience," he says. "This collegial, non-competitive environment that fosters idea-sharing reflects Jim's original vision of the Network as a study group."
The Network continues its tradition of meetings for its advisors-in almost 26 years, it's held more than 100 of its own meetings-and its tradition of Network advisors at the broker-dealer's conference sitting together and wearing a Network ribbon. "We want everybody at those conferences to know we're a family," says Dunne.
Do As I Say-And As I Do
The Network has long been focused on transition and succession planning for its advisors, in 2008 mandating that each advisor have a contingency plan for his or her practice. Since then, the Network has strongly encouraged each practice to develop a longer term transfer and exit strategy plan. "Our plan," says Stadjuhar, "is that if they don't have a succession plan, the Network will be the default. There will always be some advisors that can't seem to find a successor; in those cases, we will. We're being aggressive in helping advisors deal with the big industry issue that's confronting everybody-an aging advisor base and no incubator system for new advisors." The Network also helps advisors interview and groom successors and Herrington, Dunne and Stadjuhar work with advisors on staffing plans, job descriptions and a technology strategy for their practices.
The Network also has a plan for helping replenish the diminishing supply of experienced advisors-product sponsor wholesalers. It makes perfect sense, according to Dunne and Herrington. "There are a number of very successful wholesalers who are tired of being road warriors and who are well-trained and excellent working with clients. We can help them acquire a client base from an advisor interested in an exit strategy and provide support in managing that transition."
The Network's track record as a sustainable model of "advisors as a family" is hard to dispute. It's also one that Herrington believes more broker-dealers should be paying attention to. "Part of this legacy is that we've proven advisors need more of what broker-dealers often can't offer," says Herrington. "Perhaps more broker-dealers should be investing in strong networks in the field that can provide networking, collaboration and advocacy. I believe they'd get good ROI. And because of our tight-knit culture, many times we can see trends among advisors and clients before a broker-dealer can. We're tracking 188 advisors as a single unit."
The Network is also tracking its next great leadership hire. Stadjuhar says one or two key people are needed "to round out Jim's vision for the future." Herrington may be a step ahead, just as he was when he discovered Stadjuhar: "We've identified another member to join the team-that person just doesn't know it yet."
Shelley A. Lee is a writer and communications consultant in Atlanta, GA. She can be reached at Shelley@ashworth-lee.com.