As advisors age, more are looking for a way to start transitioning their business to others, but selling the firm may not be the best option, according to Jeremy A. Kisner, president of SureVest Wealth Management in Phoenix, Az.
SureVest has developed an alternative called revenue-sharing partnerships that allow advisors to taper off on their work schedule when they want and to eventually retire, he says.
As many advisors age, they may not want to retire. Sixty-nine percent of firms run by someone age 60 to 64 do not have a succession plan, he says. In addition to wanting to continue working, many advisors are held back because they do not have a good way of exiting the profession.
Selling a small firm with one or two staff members can be problematic. If a buyer can be found, the economics are not always good. Kisner gives the following example: A firm bills $1 million annually and the founder agrees on a sale price of $2.3 million. Estimating capital gains taxes at a conservative 15 percent, the owner will receive $1.95 million. Assuming a 4 percent withdrawal rate, that translates into $78,200 of annual income.
As an alternative, the owner of the firm could enter into a revenue-sharing partnership with another larger – but still relatively small -- RIA. Kisner has completed two such deals. The smaller partners retain their independence, control hiring and firing for their firm, decide what office space they want and make the other business decisions they would normally make.
At the same time they have the technology, compliance and marketing capabilities of the larger partner firm at their disposal. The smaller firm pays 50 to 75 basis points from their management fee to SureVest.
The owner of the one- or two-person shop can decide how many hours he or she wants to work, bringing in more income than would have been obtained from an outright sale. Eventually, when the owner wants to retire, there will be a natural succession for SureVest to buy them out, because both sides already know each other and the clients.
“The arrangement allows us to leverage our investments in our firm because more advisors are paying for the compliance officer or the new technology,” Kisner says.
“The advantages are not just economic either,” says Kisner. “There are more people to share ideas with.”
The partners operate under the SureVest name, giving SureVest a presence in more places. One partner SureVest has taken on is in Las Vegas and the other splits her time between Phoenix and New Jersey.