Conventional wisdom holds that many small business owners delude themselves into believing they are irreplaceable so they engage in half-hearted attempts at succession planning, often setting potential successors up for guaranteed failure, if they even bother to do that. This sorry state of affairs probably characterizes more than a few advisory firms along with many of their clients who own businesses.

But nowhere is it set in stone that such a destiny is inevitable. Last month senior editor Eric Rasmussen profiled Savant Capital, a thriving Midwestern firm that structured its own internal succession to most partners’ satisfaction. This month, senior editor Jeff Schlegel takes an in-depth look at Long Beach, Calif.-based Halbert Hargrove, which is attempting to pull off a similar feat.

It should be noted that both these firms are managing succession without using outside capital from a roll-up firm or outside investor or some other type of consolidator. Both firms have more than $4 billion in assets, so they have size, scale and management depth. Still, one could find many service businesses of comparable size in the RIA space, and other industries as well, which have gotten tripped up by this challenge.

What makes the transitions at both firms all the more remarkable is that they had a few senior principals well into their 60s or older who controlled 50% of the equity or more. At those ages and degree of equity concentration, their firms are supposed to be close to the point of no return—where the founder can’t get a fair price without forcing the successors to leverage their own personal balance sheets to a level any experienced financial advisor would deem imprudent.

In the case of Halbert Hargrove, 68-year-old Russ Hill is passing the torch to 47-year-old John C. Abusaid and a group of thirty-somethings and twenty-somethings who recently became directors. It’s hard to imagine that Hill himself, a Stanford MBA whose father was a principal in the business, would leave the firm’s clients in any hands but ones he trusted. With 106 employees, Savant has an even broader pool of potential partners.

Both firms also managed to acquire other firms themselves and learned a few lessons along the way, sometimes the hard way. The larger point, however, is that they have managed to address internally and solve the major challenges any business faces over its lifecycle without bringing in an outsider. 

Evan Simonoff, Editor-in-Chief
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