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A Change of Perspective

As you know, small business is not immune to internal conflict. But no matter the size of your office, a change of perspective may help you see an issue in a new light and find the resolution you’re looking for.

Of course, we’re all naturally clear on our own perspective and how to assess a certain situation or conflict. Seeing that same issue from someone else’s point of view, however, is a skill. But where do you begin? Well, someone wise once taught me a trick to view things through another person’s eyes. Odd as it may sound, it involves physical movement.

Get Moving

Let’s say, for example, there is a disagreement in your office about where a new staff person is going to sit. In this situation, each member of the team may have a different perspective.

  • One staff member feels he should move to the open cube, which is slightly larger than his current space, because he is now the most tenured staff person in the office.
  • The hiring adviser would like the new support person to be in that cube since it is closest to her office.
  • Some staff members feel that, if the most tenured staff person moves, they all should move to be close to a particular adviser or to match space with tenure.
  • Other advisers in the office think, who cares? Whatever.
  • The office manager would like to take an approach that keeps everyone happy and productive.

Discover a New Point of View

While this scenario may seem a bit trivial, it is real life. I’m sure everyone has encountered a similar situation. Here, the knee-jerk reaction that all this is silly (can’t we just focus on work?) may not be valid. Instead, what if you were to physically sit in the open cube, the adviser’s office, other staff members’ cubes or other advisers’ offices? I think you just might discover that the issue is quite real.

The act of physically moving to a different space can help you see things from a new point of view. The issue you’re dealing with could be anything—deciding whether to spend more of the budget on marketing, coming to an agreement on the planning software that will meet the needs of all or even making the firm-wide decision about the best asset allocation for a client segment. You might not find the answer by sitting in your office and trying to understand it from the perspective of others. But you may find it by moving your body to a different location—any location. Physical movement is the tool to help you stand in someone else’s shoes.

Create a Powerful Solution

I was recently reminded of the value of changing space to gain perspective while visiting China. My perspective of the country was “off.” But as I stood in a new space that was 7,500 miles away from home, saw a few of the 1.4 billion people everywhere and breathed the air, I began to understand a different culture and left with a lasting memory of a country of building cranes. A change of scenery can do a world of good. And by truly experiencing a different perspective? You will have a greater chance of creating a more powerful solution.

Joni Youngwirth_2014 for web

Joni Youngwirth is managing principal of practice management at Commonwealth Financial Network in Waltham, Mass.


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The Financial Implications of Selling Your Practice

Prior to selling a financial advisory practice, along with selecting the right buyer, it’s important to be knowledgeable about the financial aspects, including: price versus value and the aspects of the deal.

Price Versus Value
To begin, it’s important to know the difference between valuation and price. For example, you may think your practice is worth a certain dollar amount because of the hard work you have put into it and the wonderful clients you have, however the valuation may show otherwise.

Valuation looks at the entire enterprise value of the firm based on the methodology that is most appropriate for a given situation. Most valuation approaches are classified as: income approach (net value plus future potential); market approach (comparison to similar practices); and asset-based approach (tangible net assets determine fair market value).

While the debate continues as to which is best, and rules of thumb are suggested, the best advice is to seek multiple valuations.

When preparing for your valuation, the following factors are often key determinants for buyers and lenders:

Age of your clients. If a large number of them are nearing retirement, they may be considered less valuable than younger clients who are in the accumulation phase.

Number of clients. A smaller number of clients with higher net worth are easier to manage than a large number with fewer assets.

A buyer will also look at the current profitability of your firm and the amount of growth you have experienced over the past years. Equally important will be how you manage your business. For example, fee-based income is more predictable and looked at more favorably by lending agencies.

Aspects of the Deal
How you are willing to structure payments is an important element of the sale and can affect the buyer’s and loan company’s willingness to participate. Unfortunately, there is no boilerplate formula. On average payment terms were split between three payment types:

  • Down payment: 36 percent
  • Promissory note: 55 percent
  • Earn-out: 9 percent

Advisers need to keep in mind that a sizable down payment may be impractical because the assets are intangible. The bank can’t repossess a book of investments.

However, there are institutes that are set up to make loans of this type. The buyer or seller might also contact his or her B/D or custodian to see if it has a program available.

The promissory note allows the seller to receive fair value over a reasonable amount of time. Most sellers are paid in full within three to five years.

The earn-out compensates the seller a percentage of future revenues based on future performance. Performance can be based on gross revenue, AUMs, net acquired assets or any other measure both parties agree too. It’s a good way for buyers to be protected against an under-performing firm or sellers to receive the full amount of its worth.

The important thing is to set up a deal that you feel okay with and the buyer will be able to find funding for.

phil-flakes

 

Phil Flakes
Co-founder
Succession Link
San Diego, Calif.

 


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Letting Go of Relationships

Compared with professionals in other industries, financial advisers typically enjoy uniquely satisfying relationships with their clients. One reason is that “clients for life” is more than a catchphrase. Given the myriad of critical financial issues, life circumstances, and market volatility that can occur in any 10- or 20-year period, it’s no surprise that deep relationships develop.

But what happens when it’s time to let go of these relationships so a new adviser can take over?

Time for transition
No matter how competent the new adviser, nor how well honed his or her relationship skills, the new adviser is often stepping into a situation where both the original adviser and the client are grieving the loss of the relationship. Two things can happen: in the healthy approach, the client and the original adviser mutually agree to let go of the past and foster the development of the new relationship. In the unhealthy approach, the client and/or the adviser holds on to the existing relationship for dear life, which could undermine or even sabotage the relationship with the new adviser.

For example, it’s not unusual for the original adviser to think that his or her way of doing things is best. Although a new adviser may do some things similarly, the likelihood that his or her way of doing business will be exactly the same is small. That’s true even when the new adviser is the child of the transitioning adviser. If the original adviser feels the need to swoop in and mediate, the relationship between the client and the new adviser certainly won’t get off on the right foot.

So what can advisers transitioning out of the business after decades-long relationships with clients do?

  • Acknowledge that leaving one’s career may create a sense of loss. For some, you may even go through a grieving period similar to when you lose a loved one. In such cases, it may be tempting to keep tabs on client relationships. If keeping tabs is purely personal or “golf-based”—fine. But the original adviser should avoid interfering with the professional relationship between the client and the new financial adviser.
  • Those transitioning out of the business should seek the counsel of those who have experienced the same process. Sometimes the transition out of a long-term career can lead to depression, especially in the last third of life. Another adviser who has already gone through the transition process may provide a good sounding board.
  • Plan for a transition early. Both the original and the new adviser should budget ample time for joint meetings with clients to transfer knowledge and to foster the transfer of the professional advisory relationship.

The bottom line is both advisers must do what’s best for the client—even when it means letting go.

Joni Youngwirth_2014 for web

 

Joni Youngwirth
Managing Principal of Practice Management
Commonwealth Financial Network
Waltham, Mass.