Sometimes the very things that make a financial planning firm prosper in its early stages are the things that tear it apart later. If people are working in silos or a different culture—if one person loves trading too much, for instance—small differences can turn into huge gulfs.

Marita Sullivan, the CEO of JMG in the Chicago suburb of Oak Brook, Ill., was one of the people who saw problems on the horizon at her own firm in 2005. At the time, JMG was thriving and growing its base of assets. The firm had built its name catering to corporate executives and affluent business owners, trading off its deep background in tax planning. The tech bust burned many investors, but it was kind to JMG, allowing Sullivan and her partners to pick up new clients with demolished nest eggs and help them start again.

But perhaps it’s when things are on a tear that a person gets paranoid. The JMG team realized there was no succession plan. The firm’s guiding philosophy was akin to, “Every man for himself.” Each advisor got a huge chunk of revenue back as compensation, revenue that Sullivan and her partners thought could have been building the firm itself. That culture of free agents might have made individuals feel secure in their posts, but the lack of team spirit meant there was no plan for power transfer.

So what did they do? They started over.

“In 2003, 2004 we were actually doing very, very well,” says Sullivan. But, she says, “I was afraid the firm wasn’t going to grow, because if you’re making more than enough money, what incentive do you have to bring in more clients to help someone else?” Revenue was pegged to each individual advisor’s book of business. The company had no worth by itself, really, unless it was sold to a third party, which nobody wanted to do.

As part of the plan, shepherded by Moss Adams, JMG restructured. All the advisors took pay cuts to pump revenue back into the firm. People’s bonuses were pegged to how well the firm was doing, not just how a few people were performing.

It sounds like an easy process. But it wasn’t. By the end of it, the last original partner had left. And Sullivan herself is now in a position, as one of the elder partners, where she could conceivably be among the first forced to relinquish ownership.

But to her, it was worth it to protect the younger advisors and the firm’s future. “It was very painful because you’re telling people: ‘You no longer have 100% control of your destiny.’ Before, if I brought in a client and my salary was contingent upon that, I didn’t care what the other people did. And this really just changed our thinking around: that if we really became a company, everyone really tries to help everyone else out.”

Accounting Beginnings
The firm launched in 1984 when a team of accountants, some from Arthur Young, decided financial advice was a natural progression from tax planning. Sullivan (who joined three years later, also from Arthur Young) said the firm saw financial advice as being more about keeping money than growing it, a sentiment that reflects the firm’s tax beginnings. JMG didn’t get into investments really until later.

“It wasn’t until probably ’92 and ’93 then all the way to ’96 that we became much more sophisticated in the investment area,” she says. “So unlike most RIAs, wealth managers, we came from the financial planning side, [not] investments.”

Sullivan herself was a late bloomer, who jumped into the accounting world in her 30s after having two kids, benefiting from an equal employment opportunity culture at Arthur Young, which was looking for different types of employees. (One of JMG’s co-founders, Wayne Janus, also came from that Big 8 accounting firm.)

JMG’s original four partners (including the “J,” the “M” and the “G”) started to spin off or cash out or move on into real estate until only one was left by the 1990s. Sullivan eventually became the CEO. The firm dropped its brokerage licenses in 1996 and continued to build up its reputation with corporate executives, getting on the preferred provider list for corporate programs at some big blue chip companies.

“Because of our very strong tax expertise we dealt with corporate executives and we are actually approved service providers for several corporations, and it just kind of spread from that,” she says. “An executive would leave one company and go to another company and he was happy with us and he’d start a program there. So the genesis was the fact that we really understood options for comp and corporate benefit plans, and so companies hired us to help their executives.”

The executives at companies like McDonald’s (also in Oak Brook) and Dean Foods helped open the floodgates, she says. “We’d had Dean Foods before it was bought out with Suiza,” she says. “We had IMC before it got bought out. [It merged with Cargill in 2004 and became the Mosaic Company]. But as the executives there moved elsewhere, we retained those executives and ended up getting their friends. When I was in public accounting with a McDonald’s executive, that ended up being at one time my largest account. Now it wasn’t McDonald’s, as such. It was the executives and their friends, family co-workers, so we ended up with over 80 McDonald’s executives at one time.”

Executive Woes
The firm has made its name with such clients by understanding their benefits and options. One of the biggest problems executives have is a lack of time to set their own houses in order, says Anthony Cecchini, JMG’s chief compliance officer.

“Even those that have financial expertise don’t tend to take care of their own [personal business],” says Cecchini. “It’s kind of like the classic plumber with a leaky sink.”

Catering to these people sometimes means seeing nuances that others don’t see. Sullivan remembers that she found one client being taxed twice on stock options because her accountants didn’t understand them. “They weren’t giving her the step-up in basis she would have got for including it in income.”

Cecchini says a big risk for executives is that they don’t think about how to exercise their options appropriately. Many, he says, pull the trigger when they need the cash. Instead, they ought to be considering the stock’s possible growth or the amount of time until expiration. That was a big problem during the financial crisis, which made everybody jumpy, he says, and prompted people to prematurely exercise their options on stocks that were going to rise. “A lot of options are granted in the first few months of the year and so you had a lot of people at very low strike prices on their options,” he says.

“Often you have people doing either one of two things, they either need a new car so they exercise options, or they are going to wait and say these options are about to expire, I’ll exercise them.” The firm tries to get clients instead to think more strategically about their options—consider tax ramifications with other income and avoid waiting until the last minute to exercise, which would mean eating the current price, however good or bad it is.

Diversification is also obviously a huge problem for corporate executives, whose portfolios are often choked with a single stock. But it’s a sensitive topic for them, Cecchini says, since selling out of positions is often the prudent course financially, but not always good for PR.

“It’s especially a problem for the top x number of individuals at a given company,” says Cecchini, “because oftentimes they are under the microscope if they sell a stock or exercise an option. It’s public knowledge and it’s negatively looked upon by the public. ‘Oh, the CEO is selling! Is there something wrong?’ … Never mind the fact that the option might have been expiring and if they didn’t exercise they would lose everything.”

A New Pie
The firm’s success has paid off in assets under management (which the firm says has grown 100% in the last decade, to $1.6 billion). But, again, Sullivan says the company had no transition plan (and thus no real value). Thus it embarked on its attempt to shake up the company culture by making it more “All for one and one for all.”

“The only way you can have a transition if you don’t do something—and have the stock be worth something—is to sell it to a third party, and we didn’t want to do that.”

The firm restructured its compensation so everybody took pay cuts. There were also non-solicitation clauses added; one person’s clients now belonged to the entire firm—not a popular idea with everybody. And the firm enforced a more uniform investment strategy—a broad asset allocation strategy using ETFs, with no individual stock picking, says Cecchini.

“We literally do not promote the purchase and sale of individual stocks,” Cecchini says. “Obviously we use ETFs as a broad diversifier. We don’t allow our advisors to do that, and so if we were to explore a merger of some sort then we would obviously want to have a similar cultural fit.”

Sullivan says the reconstruction was the last straw for some people, including the remaining co-founder, who left.
“Like anything, when you’re setting something up, [people ask,] ‘Why am I getting so many shares and someone’s getting a different amount?’ Or, ‘You’re getting a different amount. How are you calculating?’ And the big thing, which I completely understood, was that several of us did not have non-competes [before] and everybody had to sign a very stringent non-solicit. And so the clients became firm clients. And so, if you were going to make sure that everybody had the same stringent non-compete, non-solicit, then how was the control going to be held in the firm? How many votes did you have just to make sure you were protecting yourself?”

The process took a couple of years, she says, so the partners could make sure that everybody who had put a lot of effort into building his or her own book could feel secure in the new order. Consultants at Moss Adams were a big help, she says.

What they lost in pay, the advisors now make up for in bonuses, say Sullivan and Cecchini. “JMG structured the compensation so that there is a company bonus and hopefully every person in the company participates in it,” Sullivan says. “And last year was our largest company bonus.”

The firm has grown from nine partners to 13 in the new regime. JMG says advisors who want to become partners have a flight plan they must follow. They must maintain certain revenue levels, bring in new business and make additional contributions to the firm. They are voted in by current shareholders and employees. There are also three non-advisor partners (such as technical people).

“There is pretty stringent criteria to become an owner,” Sullivan says. “You need a certain client base and/or we have operations people who are owners. So you have to really be contributing to the growth of the firm. You can contribute that by IT, by human resources, by operations, by helping run the firm, or you can contribute by bringing in clients and helping the younger advisors increase their overall client base.”

Sullivan was one of the people most disadvantaged by the new structure, since she’s the second-oldest partner. “The other shareholders can purchase your stock when you’re 70,” she says. “I can still work here, but I just think it’s a good thing that if it’s a growing firm, which it is, and I think that if the young partners are bringing in clients, which they are, then they should have the opportunity to benefit more from it.”

The firm has 550 clients, says Sullivan, but she herself is down to about 30 as she travels around the country giving lectures. She has become so intimate with many clients that she vacations with them. She has recently visited London, Barcelona, Peru and the Galapagos Islands with them.

“A lot of my clients are widows and they would just say, ‘Hey we’re going to go off to Paris, do you want to go?” She adds that when you’re walking around in relaxed locations like beaches and forests with people, you can learn nuances about them you wouldn’t otherwise. “When you’re dealing with people in such intimate detail, they become friends.”

The key to working with women, she says, is being able to understand the language they are speaking and the emotional cues. “When there’s a dramatic change in someone’s life, be it becoming a widow, a death, a divorce, and they say they are really nervous and afraid that they are going to run out of money and this and that … I think a lot of men just go, ‘You’re going to be fine.’

“To understand that this is a legitimate fear and listen to it and not to discount it—I think that’s important. And not to assume because [the clients] don’t know the buzzwords that they aren’t really, really smart.”