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Managing
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Tuesday, June 15, 2010 21:38
(George Tamer)
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SMART goals and a "stop doing" list offer a new spin on strategic planning.
As advisory firms grow and client needs become more involved and complex, a direct result is that operational footprints become larger and larger. For many advisors, this fact quickly becomes a management challenge leading to capacity issues and a barrier to growth.
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Productivity and efficiencies have been a theme in previous articles as critical to success for today’s investment advisor. Continuing this theme, we offer a new way to look at strategic planning.
Developed by ActiFi1, a leading third-party financial services consultancy, SMART goals (Simple, Measurable, Actionable, Reasonable, Timely) can be an excellent way to develop actions and tactics to move the enterprise forward and should be established and reviewed on a regular basis.
But for many advisors, as strategies change and evolve, you end up with a never-ending list of SMART goals in addition to the day-to-day operations of the firm, resulting in paralysis. In this situation, rather than identifying new strategic projects or implementing additional workflows, there is an opportunity to create a “stop doing” list to free up resources and better apply them toward enhancing client relationships and business growth.
The “stop doing” list is simply a list of things and actions that you as the advisor deem are no longer important or critical for your attention. Ways to identify these items is to sit down with the entire staff and list the top objectives and tasks that need to be accomplished over the next 90 days.
Ask yourselves if the item is important, will it achieve your business objectives, can it be delegated, or outsourced to someone else, or can you stop doing it entirely? One quick and easy litmus test is to ask yourself, “If I started charging my clients to complete the item in question, would they pay for the service?” If the answer is “no,” stop doing it! Repeat this exercise for daily and weekly tasks and action items.
From there, assign a priority to every action item, task project and initiative. From this prioritization, you can quickly see a list of things that you and your staff can comfortably stop doing. Calculate the amount of time that you may save by not doing these things and that “bucket” of time becomes a resource that you can tap into to take on high-value, strategically important business building, efficiency and growth projects that have a high ROI and bottom-line impact.
Not only can the “stop doing” list free up critical resources, it can also go a long way toward motivating and energizing your staff as they will directly see their feedback turn into action.
George Tamer, Director, Strategic Relationships, TD AMERITRADE Institutional
1TD AMERITRADE and ActiFi are separate and unaffiliated and are not responsible for one another’s services and policies.
TD AMERITRADE, Inc., member FINRA/SIPC/NFA. This is not an offer or solicitation in any jurisdiction where we are not authorized to do business. Past performance of a security does not guarantee future results. All investments are subject to investment risk, including possible loss of the principal invested.
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Building A Foundation For Success - Part 2 |
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Monday, June 14, 2010 01:06
(David Grau Sr., JD)
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Recruiting and developing a skilled team of advisors is one of the most difficult challenges facing the ownership of a financial advisory business. It is, after all, the people that are the real assets of any business, and nowhere is this more true than in a professional services industry.
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But recruiting and training a core team is actually only half the challenge. The other half is retaining key employees now and into the future – a future that may extend beyond the current owner’s lifetime. Operating your financial services business as an entity (corporation or LLC) provides some important options and opportunities, such as setting up an internal ownership track. While this strategy may not produce a successor to the business, it is all about succession planning.
The advantage of creating such an internal ownership path stems from its ability to turn key employees into active investors who see their value grow through their own hard work. In addition, retaining and motivating key employees is a major step in preserving the value of the business in the event of short-term disasters such as the sudden death or disability of the founding or majority owner. Creating an internal ownership track is an integral part of managing and growing the equity in a financial advisory practice.
Cast in this way, an internal ownership program becomes part of the overall “equity management” of a firm, a concept focused on helping investment professionals monitor, protect, and realize the value of an advisory business while providing for the long-term care and retention of the client base. By creating an ownership platform for the next generation, investment professionals have an opportunity to create a stronger and more stable business model that can grow, with the client base, from one generation to the next, while growing the equity and hence the reward for all of the “owners” of the company. This is succession planning. As I’ve said before, succession planning is NOT about selling the business; it is about control and rewards and choices, if you plan ahead.
Providing ownership to employees need not be a complex undertaking, but it does need to be set up and administered properly. At opposite ends of the spectrum are two well known approaches – gifting the stock (along the same lines is the use of equity compensation), or using a formal program such as an Employee Stock Ownership Plan, or ESOP.
Many owners think the simplest, most effective approach is to simply gift a small or minority portion of stock (or membership interest in an LLC) to one or more key employees. While this approach can achieve, at least in part, the objective of moving an ownership interest to a key employee, there are a host of valuation and tax issues that accompany such transaction, especially in a non-family transaction. (Gifting stock is far more complicated that most people realize – don’t do it until and unless you and the recipient of the stock fully assess the tax and legal consequences.)
An ESOP is an employee benefit plan governed by ERISA which provides a tax-advantaged mechanism for transferring the ownership of a company to its employees. The regulatory requirements for maintaining and administering an ESOP, coupled with the cost of setting up such a plan, make ESOP’s impractical for all but the largest financial advisory firms.
So where is the middle ground? An ISOP, or Internal Stock Ownership Plan may provide the answer. An ISOP is a structured, non-qualified plan which allows employees to purchase stock (or LLC membership interests) at fair market value, at preset time intervals, and on established, but flexible terms. A carefully drafted Internal Stock Ownership Plan navigates around the regulatory issues of an ESOP by establishing a formal but voluntary program in which licensed employees individually elect to participate and to invest their own money (although a payroll bonus plan is often included as a part of the funding mechanism).
It is important to understand that creating an internal ownership plan is about growth and stability – it is unlikely that an employee will end up buying out 100% of the company. While we do many internal succession plans from owner to employee, or parent to son or daughter, they only work when the owner is willing to finance the transaction over a decade or more. If this is your goal, you cannot start early enough.
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The RIA's Simple Guide To Apostrophes |
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Tuesday, June 08, 2010 06:36
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Are you tired of correcting employees’ misuse of apostrophes? Here’s a quick guide that may help!
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1. An apostrophe is most commonly used as a possessive for one person or
thing. In this case, add ‘s whether or not the word ends in s:
Sheryl’s project
The copy machine’s problems
The business’s customers
2. For the possessive of more than one person or thing not ending in s, add ‘s.
Children’s education
The media’s attention
3. For the possessive of more than one person or thing ending in s, add ‘ only:
Workers’ income
Employees’ bonus trip
4. For compound words, add ‘s only to the last word:
The brother-in-law’s business
Somebody else’s fault
5. The apostrophe is also used for contractions. A contraction is an abbreviation for two words, as follows:
It’s a girl. (It is a girl.)
You’re wonderful. (You are wonderful.)
6. The apostrophe is also used for plurals or letters or numbers only if it doesn’t make sense without it:
CPAs
Do’s and don’ts
6’s
7. The word “it”: “It’s” means “it is.” “Its” means the possessive of “it.” For
example:
Its toes
It’s happening
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Building a Foundation for Success |
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Sunday, June 06, 2010 21:14
(David Grau Sr., JD)
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Building a financial services practice that has enduring and transferable value should be the goal of every advisor. After all, the plans that you write and the investment strategies that you implement for your clients impact multiple generations – why not build a business that can deliver advice and services to all of the members of a family, and beyond your lifetime and your clients’ lifetimes.
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A simple way to build a business that can outlive you is to set up a formal, industry-specific entity such as a corporation or a limited liability company (“LLC”). One of the major advantages for owners who operate as an entity is the ability to transfer small, incremental ownership interests over an extended period of time. For example, a founding owner can set up an internal ownership track and sell 5% of the business to a key employee, or a son or daughter, financing that sale over a period of five years or more. As a result, founding owners create and develop “partners” to rely on in the event of temporary or permanent disability or sudden death – a continuity plan. Longer range succession planning options also enter into the picture.
Understand that setting up a corporation or an LLC has little to do with limiting your liability. As a former regulator and a securities attorney, I can tell you that you cannot limit your liability for negligent investment advice by incorporating. If you’re negligent, you’re liable, plain and simple. That’s what E&O insurance is for. I’m talking about building a stable and enduring business platform, for generations to come, and that is NOT a sole proprietorship.
An investment professional who operates as a corporation or LLC will contractually establish the client relationship through the entity, as opposed to the individual professional advisor. A client, for example, will sign an Investment Advisory Agreement with Capital Asset Management, Inc., rather than with Bob Jones, an individual and sole owner of the company. In the event of the owner’s retirement, death or disability, the contractual relationship can be maintained without interruption through the surviving and continuing shareholders of the advisory business. That’s part of the process of succession planning.
Setting up an entity underscores the basic idea that while people don’t live forever, an entity can, or at least for more than one generation. In contrast, a sole proprietorship can only transfer assets, making it impossible (or at least very difficult) to share ownership in the same company.
At this time in the independent financial services industry, LLC’s are the choice eight out of ten times. Unfortunately, too many attorneys and CPA’s are touting the benefits of this relatively new business model without fully understanding how it functions in this industry. They prefer an LLC’s flexibility over the more rigid rules and maintenance procedures of a corporation. Having owned and run an LLC and a corporation, side by side for the past 10+ years, I don’t agree that an LLC is the best model for today’s growing advisor.
LLC’s have some advantages, to be sure, but not in building smaller (less than $3 million in value) businesses with just a handful of owners. Consider that most LLC’s are set up as partnerships for tax purposes. Did you know that selling 1% of the LLC in an internal sale means that your key “employee” can no longer be handled on a W-2 basis? In a corporation, an employee can be an owner and an employee at the same time. Did you know that in an LLC or an S-corporation, owners cannot effectively borrow from the business (i.e., a shareholder loan), creating an obligatory note as opposed to compensation, as they can in a C-corporation? Did you know that when an LLC buys out a retiring owner, all of the payments are typically ordinary income reported on a K-1, not long term capital gains as in the sale and redemption of stock?
For these reasons and more, it is important to carefully consider which business platform to construct and build your advisory practice on. A mistake at the foundational level will have repercussions for the duration of your career. Most lawyers have never personally built a business of substantial size from scratch and have no understanding of the tax and regulatory intricacies of entity structuring in this unique industry.
In an entity based model, retiring owners can also sell a majority interest in their business, but remain a minority owner, holding on to 30% or 40% of the company. The ability to retain ongoing ownership is beneficial because it helps maintain continuity in the slow, gradual transition of client relationships from one generation of ownership to the next, and it reduces the initial cost of the controlling interest to an employee or son or daughter. Ongoing ownership also typically allows the exiting owner to retain an appreciating ownership interest.
Unlike the sale of assets, which is the process by which most third-party acquisitions take place, the control of an entity can be shifted, literally, 1% at a time. The gradual pace provides peace of mind to exiting owner, succeeding owner, staff members and the clients.
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Independent Needn't Mean You Are Alone |
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Tuesday, June 01, 2010 13:52
(George Tamer)
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2010 could be dubbed “The Year of Opportunity” for independent advisors if the current market environment continues. Just consider how the stars have aligned: Wall Street is bogged down by massive mergers, bankruptcies and scandal. According to Cerulli analysts, Baby Boomers entering retirement represent an estimated $1.8 trillion in rollover asset opportunity over the next five years.Independent, fee-based, objective advice is in high demand and may continue to increase in demand if regulatory reform results in a move to adopt a higher standard of care.
This Website Is For Financial Professionals Only
As small business owners, many independent investment advisors don’t have a board of directors to help set strategy or vet ideas. But one promising area that can help is study groups.
While not a new idea, study groups can be an excellent way for independent firms to share best practices, bounce ideas off peers with similar business models, and compare financials, technology and operating issues. Similar to the function of corporate board of directors, study groups can also help independent advisors find solutions for tough organizational and HR problems while they grow their firms and take advantage of current opportunities.
Study groups can offer high return for low cost. For example, the interaction with like-minded – and more important, not like-minded advisors – can be very energizing and motivating, and can provide a sense of community. Additionally, discussing current topics keeps advisors informed and on the cutting edge of creating and offering value to their client relationships.
When you’re looking to join or start a study group, our experience in working with hundreds of advisors is that there are a few areas that are critical to success.
First, study groups need to have clearly articulated goals, objectives and agendas so there is focus and equal participation. I can’t stress enough how important equal participation is. You must be willing to share your ideas and things that are working well for you in addition to learning from your peers.
The ideal size is roughly 12-15 members, to provide variety, but not so large that it becomes difficult to manage. A meeting schedule needs to be frequent enough, but not so overwhelming that it causes burnout. Our recommendation is to meet for a full day once a quarter. Another consideration for creating an optimal study group is to work with other successful advisors who will challenge you and hold you accountable for actions to improve your practice.
And finally, it is critical to have a very high level of trust among all members in order to promote open sharing of ideas and advice. It’s not a bad idea to have geographically dispersed members so there’s no fear of competition, but I would argue that a local study group could be just as effective. There is enough money out there and most advisors offer such different services and investment approaches that the perceived competition doesn’t actually exist.
While study groups can help in times of growth, they can also be a powerful way to help you manage during times of contraction. By providing support, guidance and benchmarks for your firm, they can help you evaluate the difficult decisions that you may face in challenging markets, such as staffing levels and client management.
If you are interested in joining or starting a study group, some familiar places to start would be to simply ask other successful advisors you admire, network at professional groups and associations such as the Financial Planning Association, which has resources to support various communities of interest. Other places to look include your custodian, fund company or other vendors that service large numbers of advisors.
The opportunity of a generation awaits independent firms – look to your peers to help you get there.
George Tamer, Director, Strategic Relationships, TD AMERITRADE Institutional
TD AMERITRADE, Inc., member FINRA/SIPC/NFA. This is not an offer or solicitation in any jurisdiction where we are not authorized to do business. Past performance of a security does not guarantee future results. All investments are subject to investment risk, including possible loss of the principal invested.
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