One of the benefits of the independent RIA model is the privately held nature of the business entity. Usually owned outright by one or more founding members of the firm, this structure uniquely positions firms under this model to add other equity owners, unlike other structures such as banks, brokerage, and wirehouses. This is advantageous to firms seeking to attract and retain the top talent needed for the firm to continue growing.

In this month’s article, we look at some do’s and don’ts surrounding offering ownership to potential hires, and how (or whether) that makes the career opportunity you are offering more enticing.

• Do - Look for candidates that have ownership aspirations, if that is what your firm needs. This should come up in the interview process, but if not ask the candidate what their thoughts on ownership are. Simply put, if you want advisors who can be future partners or successors, clarify (and don’t assume) that they’re actually interested in pursuing that path!
  • Don’t – Get frustrated when a new hire has a lot of ideas, wanted to change things, pivot the direction of the firm, or get defensive and immediately think candidates are entitled if they ask if ownership is on the table. Most firm owners say they want something to the effect of ‘…ownership mentality.’ But it’s impossible to have it both ways – someone who thinks like an owner, but only takes your orders either does not have an ownership mindset or will not stick around long.

 

• Do – Offer ownership because you are seeking to create enterprise value in your business so it survives you, and layout exactly what the aspiring owner must do, what you must do, and what the firm must do for ownership to occur.
  • Don’t – Offer because your colleagues, consultants or industry pundits are telling you to that is the only way to “keep and retain” talent. Even though it may seem appealing to some, keeping people tied to your organization via a golden handcuff type approach is not a long-term solution. People who are primarily motivated by sticking around for the money are not the ones you want serving your clients! If the ownership path is part of your offer, be sure to include specific guidelines for the new hire’s goals (e.g. it is not about tenure, but about the value they are bringing), your goals, and the goals of the firm.  And be aware that there are a lot of solid candidates out there who have excellent ownership/successor type attributes, but may be jaded themselves because they have been burned by firms who have continued to move the goal line in the past. In fact, motivated and entrepreneurial young advisors have more options that ever before, with platforms such as XYPlanning, Garrett Planning Network, and Alliance for Comprehensive Planners drastically lessening the burden of starting a firm from scratch. With these other options, candidates are less likely to put up with the prolonged intentional leading on by some of the original founders of established firms, if they really are motivated and aspirational but the path to ownership isn’t made clear.

 

• Do – Encourage your next generation of owners to utilize their own team of experts (legal counsel, consultant, etc.) to ensure both sides are represented fairly. Even though they probably are doing so on their own already, suggesting it reinforces the fact that you are seeking the most equitable solution for both sides, and further solidifies their decision to become co-owner in the special organization you started.   
  • Don’t – Get defensive if there is negotiation pertaining to the valuation. It is inevitable that when you put your life’s work into something, it can become part of your identity, and may feel offensive when someone questions its value. It’s crucial not to take valuation concerns personally, and equate your value as a human being and professional to what someone is willing to pay for the business. And at the same time, be certain that you really are ready to let the business go, and aren’t artificially inflating the value because you don’t really want the deal to go through (or because you haven’t saved enough for retirement yourself!). If the concern is simply getting a “fair” value, there are neutral vendors like Devoe & Co., FPTransitions, Echelon Partners, and others offering valuation services to provide a second opinion.

As firms seek to get more creative in their efforts to entice top talent to join their firms, the ownership path can be a game changer, and still differentiates one firm from another.  If you are still contemplating how this fits into your recruitment plan, some items for further self-reflection are ensuring you are offering ownership for the right reasons for your organization, setting clear expectations on what must be achieved to secure ownership and how it will be measured, and holding an honest conversation with yourself if you are ready for an identity adjustment.

Stay tuned for next month’s article where we discuss several succession planning success stories.