The Evolution of Succession Planning in Financial Firms
Succession planning and advisor retention in financial firms have seen a significant shift in recent years. Many firms are now embracing innovative structures to facilitate internal deals related to succession planning and advisor retention. According to Grau, one of the models gaining popularity is the shared growth model, where advisors earn a stake in the appreciated value over the next few years.
Shared Growth Model and Seller-Financed Deals
This shared growth model allows advisors to gradually accumulate value in the firm, incentivizing them to stay and contribute to its growth. In addition to this model, some firms are also opting for seller-financed deals, using the profits generated by the firm to pay for the note over time. These structures provide a win-win situation for both the advisors and the firm, ensuring a smooth transition of ownership while retaining top talent.
Synthetic or Phantom Equity as an Entry Point
Another increasingly common approach is the use of synthetic or phantom equity as an entry point to the succession plan. This allows advisors to earn deferred compensation with some of the benefits of actual stock shares. Previously reserved for larger firms, this strategy is now being adopted by many firms to help the next generation of advisors start accruing value in the firm. It serves as a stepping stone for them to eventually buy into the firm, with a down payment or discount already in place.
Grau notes that synthetic and phantom equity not only help facilitate the transition of ownership but also act as a retention tool. Since it is not actual equity, if an advisor leaves before realizing the value, it becomes void. This incentivizes advisors to stay and contribute to the long-term success of the firm.
Overall, these innovative approaches to succession planning and advisor retention are reshaping the landscape of financial firms, making it easier for the next generation of advisors to take on ownership roles while ensuring the continuity and growth of the firm.
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