Modern Practice Management, Pt. 2: Why Small RIAs Are Stranded When Succession Planning

While the conversation of legacy planning is common for financial advisors, the primary focus is with clients around their personal financial planning goals.  Unfortunately, it is too frequent that advisors overlook and put off their own personal legacy and succession planning needs. According to The FA Insight Study of Advisory Firms: People and Pay, 34% of respondents reported not having a succession plan in place for the firm.  What is perhaps even more alarming is that the majority of those with succession plans do not adequately address their business needs.

According to The FA Insight Study of Advisory Firms: People and Pay, 34% of respondents reported not having a succession plan in place for the firm.  What is perhaps even more alarming is that the majority of those with succession plans do not adequately address their business needs.

Data as of 2017; Source: The FA Insight Study of Advisory Firms: People and Pay

In a previous article, I discussed the 4 mistakes to avoid when planning your succession. It’s critical for all advisors to know what’s at stake when transferring business ownership, in the case of death or disability.

To those who may not be prioritizing succession planning or simply know you could be doing more—this article is for you.

The State of Succession Planning

Most established broker-dealers have an already built-in succession and contingency plan to help protect advisors and their practices. In the wirehouse or regional model, it is not uncommon for the clients of a retired or unexpectedly deceased advisor to be redistributed to other advisors in the branch office.  Previously, there was no form of compensation offered to the surviving spouse or beneficiaries as a result of an unexpected death/disability, nor to the advisor in a planned retirement.  Now, the wirehouses and regional firms are getting better about providing payment – albeit it is often nominal.  It also is not consistent across firms, so it is the responsibility of the advisor to make certain they understand what is available to them.   

The independent broker-dealer community best addresses this gap in the industry by providing advisors with readily available business continuity and succession plan opportunities.  Independent advisors have many of the following resources available to help with planning:

  • The advisor can identify and document a named successor to their firm in case of either a planned or unplanned life event using simple, internal broker-dealer documents.  This can also be established through a more formal, customized contract with various valuation, funding and protective strategies for all parties.
  • The advisor can assign the broker-dealer as the successor to provide funding to their estate and move accounts to another advisor affiliated with that broker-dealer.  One of the benefits of partnering with a larger, established independent firm is that they can oversee the process from financing, transiting and selecting the successor.
  • The advisor can also assign guardianship to their Office of Supervisory Jurisdiction (OSJ) partner, for more localized support, transition and integration into another office. This is a highly effective strategy with large enterprise offices.

Standard multiples for contingency plan payouts range between 1.5-2.5x multiples based on total practice revenues on an earn out.  It is very common to see things structured at 50% of revenues over 4 years to be paid to the surviving spouse, beneficiary or estate.  However, a formal, contracted plan will typically fetch 2-3.5x multiples on total practice revenues based on a valuation with fixed payments, larger upfront monies and shorter terms.

There are no excuses for an independent financial advisor not to have a proper contingency and succession plan in place. If you do not, take steps immediately to do so for the benefit of your clients and family.  And while you can take quick action with many “form-based” plans (they are better than nothing), I want to emphasize the importance of finding and working with the right partners to help you through creating a custom contingency and succession plan, including the deal structure valuation process, terms, financing, etc.   

However, there’s another type of advisor who is most at risk when succession planning that needs to pay particular attention—the solo practitioner who conducts business through their own RIA or Hybrid RIA.

Why Small RIAs are Stranded and at RISK

Solo practitioners who conduct business through their own RIA—regardless if it is a hybrid model or fee-only practice—benefit from being independent, but they also are figuratively stranded on a deserted island if they don’t adequately plan.

“Over the past couple of years our attorneys have seen this as a growing pain point for the industry,” said Michelle L. Jacko, Managing Partner of Jacko Law Group P.C. “Regardless the size of the firm, a plan should be in place for any untimely or unexpected event. Firms need to be proactive and cover the bases when navigating any form of succession plan.”

Let’s take John for example, an advisor whose CPA recently called asking if he would be interested in buying the his deceased brothers-in-law’s practice. The deceased advisor was a solo practitioner with a fee-only practice advisory firm with $20 million AUM custodied at a single custodian; he had no succession or continuity plan in place, and the death was sudden.

John contacted us for guidance.  He asked if he could buy the deceased advisor’s practice, and we posed the simple question: “Legally buy what and from whom?”

The deceased advisor did not have a defined succession or contingency plan in place.  Since he conducted his business through his own RIA, he did not have an RIA to RIA agreement that allowed him to share client information with another entity.  Moreover, his RIA had not named a successor owner, i.e. someone who could engage with another RIA firm to discuss partnership.  Finally, the RIA did not have the proper information sharing disclosures in place. 

So, here was the rundown:

  • No contingency or succession in place with another RIA firm
  • No information sharing arrangements with another RIA as a result of succession or contingency event
  • No contingent officer in the RIA to at least “sell” a client list (refer to the aforementioned bullet)
  • No information could be legally shared with anyone, by anyone


For numerous small RIAs across the country, this is a real concern.

Even the most simplistic purchase agreement for an RIA requires several steps prior to execution:

  • Engagement of third-party to determine business valuation;
  • Consultation with attorneys to negotiation terms;
  • Filing updated Forms ADV and preparing other disclosures documents to reflect new ownership; and
  • Client disclosures to acknowledge transfer of ownership.

If this sounds like a logistical nightmare, that’s because it can be! Small RIAs often pride themselves on being some of the most “independent of the independents” of the financial services industry, but this means that they’re isolated without legitimate succession planning—creating a mass of red tape that could be avoided.

“Firms sometimes don’t know what to expect when it comes to drafting or creating sufficient succession plans,” said Jacko. “Our team frequently counsels clients from the very beginning. This often includes reviewing the current corporate structure of the firm, assisting with short-, mid- and long-term succession needs, negotiating the structure and terms of buyout (including promissory notes, employee stock option plan and/or key person insurance), memorialization of the Succession Plan, and more. There are many components to ensuring any succession plan is comprehensive—firms need to understand that without an effective plan in place they’re setting their business, employees and so many other people up for headaches and complications in the future.”

Avoid the Lose-Lose-Lose Situation

When you put off such an important task as succession planning—it’s a lose-lose-lose situation for everyone involved: your business, your clients, and your family.

  • Your business loses when you don’t take the time to find the right successor. As seen in the previous section, it’s a enormous hassle to work around confidentiality and regulatory restrictions during business transfers—and who’s going to own this process after your death?  Moreover, if you have staff, well, they become immediately unemployed.
  • Your clients lose their valued relationship with their advisor, which is as difficult to replace as a doctor, counselor or other trusted professional in their lives. Don’t abandon the people you spent your career guiding because you didn’t think things through.
  • Your family loses because they’re stuck picking up the pieces during a time of mourning. You should be leaving a legacy for your loved ones, not a complicated mess that they’re likely not qualified or capable of cleaning up.

By focusing on succession planning now, before it’s too late, you can prevent wreaking havoc on all the people who matter most to you.

There’s a Better Way to Plan

If you have questions about how to establish succession and contingency strategies as an independent RIA, our team at The Financial Services Network can help. We serve over 300 advisors nationwide, offering six core areas of focus, including compliance, operations, virtual administration, and technology consulting.

We have worked with advisors who consolidated their RIA and level-up serviceability with our organization. We’ve also assisted RIAs who maintain their autonomy and leverage our scale and infrastructure to suit their needs. 

By partnering with The Financial Services Network, you gain:

  • An automatic guardianship plan to find the right successor(s)
  • Assistance and facilitation with all transition paperwork
  • Easy-to-understand messaging for your clients
  • A point of contact for your surviving spouse or beneficiary
  • Guidance on how to navigate through legal and compliance challenges

By working with experienced legal counsel who has expertise within the financial services industry like Jacko Law Group P.C., you will be taking the necessary steps to protect your practice and all of those who’s lives you impact.

We have the experience and expertise to help you, and most importantly your business, your clients and your family, through whatever the future may hold.

Need assistance with succession planning? Contact us to get started.

LPL-Aligned Firm Nabs FA Team from Royal Alliance

A pair of advisors previously affiliated with Royal Alliance in California have joined a firm aligned with LPL Financial, LPL says.

Antioch, Calif.-based Pacific Pension & Benefit Services, including financial advisors Michael Kennedy and Christopher Bott, has joined LPL’s broker-dealer and corporate RIA platforms, aligning with the Financial Services Network, which offers securities through LPL, according to a press release from LPL.

The team, which focuses on retirement plans, previously managed around $200 million at Royal Alliance, a broker-dealer on the Advisor Group network, LPL says.

In making the move, Kennedy and Bott were “[s]eeking camaraderie and access to vast resources and support,” according to the press release.

“The Network is right here in the Bay area,” Kennedy says in the press release. “We’re excited about having access to their talent, and I’m looking forward to bouncing ideas off the extensive network of like-minded advisors.”

LPL has lured several advisors from the Advisor Group network this month.

This week, LPL also added a Washington-based practice overseeing around $120 million from Woodbury Financial Services, another Advisor Group broker-dealer. Earlier this month, LPL also added two teams collectively managing $1.25 billion from FSC Securities, also on the Advisor Group network.

LPL had a successful third quarter recruiting brokers from rivals, growing its advisor ranks by 188 to 16,439.

Since then, the company has also added advisors from Cadaret, Grant, a wholly-owned subsidiary of Atria Wealth SolutionsBlucora affiliate 1st Global and JPMorgan.

Two LPL-aligned OSJs have also added practices in Arizona and Iowa this month. But LPL also gave up advisors in October to Triad Advisors, a subsidiary of Ladenburg Thalmann Financial Services, as well as to Kestra Financial.

The Financial Services Network hires top talent, Jim Worden, CFA®, CMT®, CAIA®

SACRAMENTO – July 16, 2019 – The Financial Services Network (The Network), a leading LPL Financial Enterprise Office, announced today that Jim Worden, CFA, CMT, CAIA will join the firm as Vice President, Portfolio Consulting, managing the Network’s Portfolio Consulting team, effective July 15th.

The Portfolio Consulting team offers customized research, trading and overlay portfolio management through their Enterprise Office/Multi-custodial Hybrid RIA with partnerships that include LPL Financial, Schwab, Fidelity and TD Ameritrade. With more than 20 years of professional experience, Worden will focus on delivering exceptional service and product experience for The Network’s advisors.

Worden joins The Network from Allworth Financial (formerly Hanson McClain) where he served as Director of Research.

“We could not be more excited to have Jim joining our organization. We are committed to investing in top talent as we enhance our ability to support our advisors and help them take their businesses to the next level.” – Christopher Mercado, Managing Partner and Chief Investment Strategist with The Network.

Prior to Allworth, Worden held a variety of leadership and asset management roles at Securities America, Iron Point Capital, Sierra Capital and Wells Fargo Securities. Worden graduated from Brigham Young University in 1998 with a Bachelor of Science, International Business Management.

“I believe in The Network’s vision for the future of this industry and their passion for supporting independent investment advisors,” Worden states. “I am looking forward to making my contribution to an already talented team and help grow an organization that focuses exclusively on helping independent advisors thrive as entrepreneurs.”

Jim will be reporting directly to Jeremy Olen, CFA, Managing Partner and Chief Investment Officer with The Network, who built and oversees The Network’s customized Portfolio Consulting services offering. “Jim’s contribution to the team will positively impact our organization by creating more capacity for the firm, provide mentorship for our team, and most importantly enhance the value of the services we provide our advisors and their clients,” says Olen. “We are thrilled to have him on board.”

What Exactly Does “Hybrid” Mean in Financial Services?

Christopher Mercado, MBA, CFP®, CIMA®, AIFA®

Managing Partner at The Financial Services Network

In the financial services industry, we often hear statistics about poor financial literacy in America and how that’s attributed to a lack of understanding of basic terminology: recent GuideVine research showed that nearly half of survey respondents couldn’t adequately define the concepts of interest or bankruptcy.

The lesser-known secret is that financial advisors can be just as confused by the increasing complexity of institutional and regulatory lexicons—in fact, many that I meet struggle to continually educate themselves and keep up with all the jargon.

The term that seems to stump advisors the most these days is “hybrid,” and to be honest, I don’t blame them. Depending on its context, the label takes on new meaning, so I wanted to provide a brief explainer on the definitions of hybrid and how they’re used.

Hybrid: Demystifying the Model

Implying the best of both worlds, “hybrid” usually brings up the mental image of a Toyota Prius—or perhaps a designer dog like the Labradoodle. However, the concept has grown increasingly popular in financial services—and with that trendiness comes befuddlement.

When advisors are contemplating a transition from one firm to another, or breaking away entirely, “going hybrid” can bring up unnecessarily perplexing questions, detracting from the higher-level and more important conversation of what’s best for your business.

So let’s cut through the confusion and break down three common phrases:

1.      Hybrid business model

2.      Hybrid RIA

3.      Hybrid advisor

1. Hybrid Business Model

One of the most commonly used applications of the term “hybrid” is derived from the type of business model that an advisor can offer a client—both fee-based and commissionable.

A commission-based business model requires the Series 6 or 7 and the Series 63 securities licenses to serve as a Registered Representative. This allows an advisor to generate a commission and earn trail revenue through a broker-dealer transaction. An advisor can build and manage a successful business working with clients in only a brokerage or commissionable business model.

However, in most cases, a broker-dealer also provides advisors with flexibility and access to accounts where an advisor can charge a fee and engage the client as a fiduciary. As such, the advisor needs either the Series 65 or 66 Investment Advisor Representative licenses that is held with a Registered Investment Advisor (RIA) firm.

This RIA is typically owned by the broker-dealer. When an advisor is affiliated with a firm’s broker-dealer and the broker-dealer’s owned RIA, the advisor is accessing a hybrid business model offering both brokerage and fee-based account solutions. This is how most independent, wirehouse, and regional firms (such as Merrill Lynch, UBS, Edward Jones, Cetera, Kestra, and LPL Financial) are structured.

2. Hybrid RIA

Advisors can join or establish their own RIA if they only want to work with clients in a fiduciary capacity and generate revenues through a fee-based relationship. The RIA will then have custodial partners (like Charles Schwab, TD Ameritrade, Fidelity, and LPL Financial) in which the advisor can access accounts, managers and investment platforms to offer clients. Some RIAs can have multiple custodial partners for greater business model flexibility.

Here’s where it gets trickier: Advisors who manage a fee-based business model through a separate RIA affiliation may still have clients with commissions. Hence, many broker-dealers offer a hybrid broker-dealer affiliation with a separate, non-broker-dealer owned RIA. Still with me?

This is where the RIA industry and the traditional broker-dealer model intersect. It is not that the traditional broker-dealer model (in most cases) did not offer RIA or fee-based account services, it’s that advisors are looking for more autonomous and flexible solutions—either through a regional/national RIA or their own.

A hybrid RIA is simply an RIA with both a custodial and a broker/dealer partner to conduct fee-based and commissionable business respectively. Notably, the RIA in this instance is not the integrated or wholly-owned broker/dealer offering, but rather a separate business and support function.

3. Hybrid Advisor

To make things even more complicated, it is common for institutions to refer to advisors as hybrid advisors—i.e. those affiliated with an RIA and a broker/dealer through separate contractual arrangements.

Some in the industry may call a hybrid advisor someone who is “dual-registered,” but we find that the term only adds to the confusion due to the varying vernacular of regulatory bodies. We can bring this full circle by simply defining a hybrid advisor as an individual who is affiliated with a hybrid RIA and thereby accessing a hybrid business model.

A Quick Recap

Going hybrid doesn’t have to be as complicated as it might sound—especially when you’re familiar with these three terms:

·        Hybrid business model: a financial advisor’s ability to offer both fee-based and commissionable services to clients.

·        Hybrid RIA: an RIA that has a contractual relationship with a broker/dealer, as a separate and distinct entity, to offer commissionable products.

·        Hybrid advisor: an advisor affiliated with a hybrid RIA—who, by definition, also manages a hybrid business model offering both fee-based and commissionable services to clients.

What Hybrid Means to You

With all this noise and jargon in the financial services industry, it’s easy to get tripped-up on some basic fundamentals by reading too much into a name. The meaning of “hybrid” depends on its use, which is entirely based on what’s best for your business.

Whether you’re looking for full flexibility or just want the simplest-to-understand solution, our team at The Financial Services Network can help. We serve over 270 advisors nationwide, offering six core areas of focus, including compliance, operations, virtual administration, and technology consulting.

Want to learn more about going hybrid? Contact us to get started.

Investment advice offered through Strategic Wealth Advisors Group, LLC, a registered investment advisor. Strategic Wealth Advisors Group, LLC. and The Financial Services Network are separate entities from LPL Financial. For Financial Professional Use Only. Not For Public Distribution. Securities offered through LPL Financial, member FINRA/SIPC.

Three Organizations Recognized by Kolbe Corp for Impact With Strengths

Three organizations, including nonprofit and for profit enterprises, have just been announced as finalists for Kolbe Corp’s 2018 Conative Excellence Enterprise Award, for applying strengths theory to make lives better. The winner will be announced at Conation Nation Symposium, Oct. 25–26.

For profit and nonprofit enterprises share one major success criteria. They must understand people before making a significant impact. In 2018, three organizations have demonstrated superior understanding of people’s innate strengths, and have just been recognized as finalists for Kolbe Corp’s Conative Excellence Enterprise Award.

The three finalists are Bethany Christian Services, The Financial Services Network and LSW Architects — representing a diverse cross-section of organizations in nonprofit, financial and professional services. The winner will be announced, along with the individual Professional Award recipient, at the Conation Nation Symposium in Scottsdale, Arizona, Oct. 25–26.

“We’ve seen that successful organizations excel when they view their employees, customers and stakeholders in terms of strengths,” said David Kolbe, CEO of Kolbe Corp. “These finalists show that understanding human potential transcends industries and sectors. We’re incredibly proud to be associated with each of these finalists for our Conative Excellence Enterprise Award.”

Bethany Christian Services (Grand Rapids, Mich.)

Bethany Christian Services is a global nonprofit organization that brings families together and keeps families together. Strengthening families for the well-being of children is its top priority. The organization’s services include adoption, foster care and pregnancy counseling. It also provides counseling to families, assists refugees and immigrants resettling in the U.S. and partners with several international countries to help keep families together. “The work we do equips families to be the answer for children in need, as Christ intended,” says Bethany Christian Services.

The Financial Services Network (San Mateo, Calif.)

The Financial Services Network comprises a highly specialized group of business, investment and compliance professionals dedicated to serving the needs of an elite community of independent financial advisors. United by a common bond of excellence and sharing the desire to elevate their practices, its advisors partner with The Financial Services Network in the pursuit of growth, efficiency, acquisition strategies and seamless succession plans.

LSW Architects (Vancouver, Wash.)

LSW offers a full range of architectural, interior design and planning services and has been fortunate to partner with remarkable clients over its 60+ year history — resulting in a body of built work that continues to change the face of its Vancouver, Washington community and communities beyond. “Our people are the heart of our success,” says a spokesperson. “Our dedicated team implements their unique talents to positively impact our projects — all the while producing a supportive, lively work environment that naturally breeds a sense of collaboration and creativity.”

About Conation Nation Symposium

Conation Nation Symposium will take place October 25 and 26 at the DoubleTree Resort in Scottsdale, Ariz., and is the authoritative conference on conation — the part of the mind used in action and achievement. The event will feature a variety of presentations from leaders in coaching, human resources, and personal relationships; including Kathy Kolbe, Dan Sullivan and keynote speaker Brian Burkhardt.

For more information about Conation Nation Symposium, visit:

About Kolbe Corp

Since 1977, Kolbe Corp’s mission is to help people succeed by having the freedom to be themselves. More than one million people have completed Kolbe assessments to better understand their conative strengths — natural instincts that govern action and achievement. Thousands of organizations use Kolbe Corp’s assessments and consulting services to be more productive and to build effective and engaged teams.

Kolbe Corp’s flagship online assessment, the Kolbe A™ Index, is the most powerful personal strengths assessment available, with proven reliability and validity. The Kolbe A Index is available online at

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