“He swears he won’t [retire], he says he will die at his desk,” said Allison Felix, COO president and principal of Cassaday and Co., about Chairman and CEO Stephan Cassaday.
In the early years of his firm, Cassaday felt troubled by well-meaning client comments like “I don’t know what I would do if you weren’t around,” because he had no formal plan to deal with his unexpected departure.
Yet he still wanted to provide his clients with the security of a succession plan.
Cassaday was already in his late 30s when he founded McLean, Va.-based Cassaday & Co. in 1993. The practice bloomed into a $2.7 billion hybrid RIA serving 1,900 client households. He had no plans to retire at the time – and he still doesn’t.
Instead, he recruited individuals 20 years his junior as the first step towards his succession plan. Advisor Christopher Krell joined the firm in 1997, a year later Justin Harris joined in 1998 and then Christopher Young came in 2000. The three men are now principals in the firm.
Cassaday owns 89 percent of his firm, while the remaining share is divvied up between Harris, Krell, Young, and now Felix, who was hired in 2001 as an executive assistant, then promoted to principal and president in July. If something unexpected happened to Cassaday, the principals would step in and buy his shares.
“Shares pass to a trust and then to the shareholders in exchange for a payment based on a multiple of firm trailing revenue,” said Cassaday. “Most is funded by insurance and the difference is paid out based on an agreed upon schedule over seven years.”
The remaining advisors would pay millions of dollars of cash flow out to Cassaday’s estate, Cassaday added.
For financial advisors who have no plans to retire because they enjoy working with their clients, sometimes called an advisor for life or a lifestyle advisor, a succession plan is a competitive advantage for their firm. Their clients know they have the option of a long-term and multi-generational relationship with a business, the senior advisor knows that their book of business will be looked after as they would have cared for it and the junior advisor gets not only mentorship, but the opportunity to inherit a business.
Despite advisors recognizing that they need a plan for themselves and their clients, Cassaday and Co.’s formal succession plan is novel for the industry. Only 27 percent of financial advisors have a documented plan. In 2015, the percentage was 28 percent, according to the “The Succession Challenge 2018: Why Financial Advisors Are Failing To Plan for The Inevitable” report by the Denver-based Financial Planning Association, in partnership with Janus Henderson Investors. However, 60 percent of advisors in firms with half a billion dollars in AUM or more have an official plan.