The plan so far consists of Peyton and Rhonda purchasing the company's stock from Russell in a cross-purchase arrangement, with the note held by their dad to fund his retirement. "Additionally, we will pay him a consulting fee to remain and help out," says Peyton.
The three began by estimating the value of the business. "It's not necessarily scientific," admits Peyton, "but we looked at the average age of our clients and our assets under management and arrived at a monthly compensation number. We want to provide $3,500 a month to our dad in retirement, so we arrived at a principal amount that will be amortized over 20 years to produce that income."
Russell will hold a note for $420,000 to be amortized at 8%. He says, "If we valued the firm based upon 2% to 2.5% of our billings, that would work out to $600,000, but Peyton has been so much a part of the firm's growth, it becomes a question of who really owns the company. If he were to disown me as his father, he could take clients he's personally brought on board, go down the street and start his own practice."
Peyton and Rhonda plan to add a few clients and make some changes when they're fully in control. "We've worked on outsourcing much of the firm's tasks," says Rhonda, "so dad can retire and so I can pursue the women's market. I want to gather a significant client base of my own."
The Multiple-Child Bequest
Keith, David and Jennifer Heichel will eventually own Pinnacle Wealth Planning Services of Mansfield, Ohio, but no money will change hands because Bill Heichel, their father, intends to bequeath his ownership to the children.
Sons Keith, 37, David, 36, and daughter Jennifer, 33, went to work for their father after careers in financial planning at American Express (Keith and David) and a career in chemical engineering (Jennifer). Since Keith started in 1998, Pinnacle has increased assets under management from about $70 million to approximately $340 million, largely by teaching CPAs and attorneys how to do fee-only financial planning and then establishing fee-split arrangements with them.
All of this growth will be transferred to Keith, David and Jennifer by what the family calls their "Family Agreement." "I'm going to work as long as I want or can," says father Bill, "and then take income from the business till my wife and I die."
But having the kids-including sons Adam and Scott, who are still in high school-inherit the business presents potential problems. "Interfamily stuff," says Bill, which the family is attempting to anticipate in its Family Agreement. The agreement, which Bill describes as "45 pages long and expensive," sets out all of their intentions.
What is perhaps most interesting about the agreement, though, is its tiered profit structure. "Over and above our base salaries," says Bill, "Keith and I will get [a share of the profit] for what we did until David came into the firm; then we establish a baseline for David and he shares profits over his baseline; and finally Jennifer participates in profit over her baseline." The Heichels haven't signed the Family Agreement yet, but say it's their governing instrument and "it works."
Some in the industry say internal successions are difficult to impossible, but the Marottas, Pankroses, Hawkes and Heichels defy that notion. While the makeup of their succession plans may be anything but standard, each in its own way is helping pave a path to a methodology other families will be able to share in the future.