Good afternoon. I'm Jen Gloss. I'm a business consultant with AssetMark, and today we're gonna be talking about succession planning. As a business consultant, I get to help advisors with many different parts of running the business. There's a whole team of folks like me, and we work with advisors across the country. It's a great opportunity for us to really support your vision as you choose to do business with AssetMark. Whether it's marketing your business, working with your team, talking about business planning and growth opportunities, to looking at your client experience. This is not even an inclusive list of all the areas in which we can help. Just to give you an idea of the different topics we can support your business with. Today, we're gonna be talking about succession planning. There are many challenges that advisors face around thinking about their succession. We're gonna talk about those and how to overcome those. We're gonna look at some strategies to get started, and then we're gonna talk about how practices are valued, how you might think about the valuation of your business today, and some things you can do today to make your business worth more tomorrow. And then we're gonna give you some next steps for executing your plan. Over the next 10 years, we're going to see a substantial amount of assets, over $10 trillion, change hands between financial advisors. However, only a handful of us, a handful of us are prepared to see this as an opportunity and to really take advantage of it. We have about 25% of advisors that are unsure of what their succession will be. Hopefully, with today's session, we're gonna give you some information to reduce that number and help many more folks start to plan and think about their succession so that they can receive optimal value for their business and make sure their clients are taken care of. Why don't we do this? Well, there's a lot of reasons. You know, for one, and probably the most important reason, according to a study that Cerulli did, this is really emotional for us. This is our life's work. We've spent our lives building this business and taking care of our clients, and thinking about giving that business to someone else is really tough. When I think about what I'm gonna do next, it's really tough. As a matter of fact, when I ask a lot of advisors, "How many more years do you wanna do this?" I often hear, "I plan to die at my desk," meaning I'm gonna do this until I can't do this anymore. It's phenomenal that our business enables us to do that, to have a long career. However, there are some ways that we can think about that to make it optimal for both you and your clients, because chances are, at some point, you're gonna wanna slow down and maybe not work as many hours as you're working now. Well, finding someone to take over our book is the next biggest challenge, and that's probably the next thing I hear in order of what's important to you. As you think about your successor, finding someone that's gonna take care of your clients the same way that you have all these years, that might be really tough. Making sure that your clients are gonna be taken care of into the foreseeable future. You know, valuing your practice is also something like, "I don't know where to start." We're gonna give you some great resources to value your practice today and to show you opportunities for looking at your practice and making it worth more tomorrow. You know, some of us have founder syndrome, where we think there is no possible way any other advisor can run my business. No one can do it as well as I'm doing it. That is absolutely okay. However, as we meet folks and we look at how they might be different or how they share their philosophy of working with clients and their investment philosophy, for example, they might have some different ways of doing things that are more innovative or taking advantage of technology in a different way. And if we're able to really appreciate those other skills, it will help us choose a partner, and it will help us become more comfortable with this journey. So try to think about that. Try to think about these other skills that other folks might have as an opportunity to serve your clients better and to help you slow down, if that's what you wanna do, or to retire fully and go do something else, and be really confident that your business is gonna be really well taken care of. You know, when we think about protecting your beneficiaries and thinking about taking care of your clients in the event that something happens to you before your planned exit, or before, you know, the end of your life, if you will, even you know, this is really important, and I would say this is where our public service announcement comes in. If you do not have a continuity agreement in place today, and something happens to you, whether you become disabled or you become incapacitated or if you meet your demise, the value of your business can, can be nothing, and your beneficiary can receive nothing, and your clients become house accounts. This is really scary and very important. Most of the broker-dealers will have a 1-page or a simple form that you can use to fill out with another advisor as your continuity partner. This is by no means a formal buy- sell, or any kind of commitment that you're giving to that person, that someday you will sell your business to that person. It's simply a stopgap that protects you and your beneficiary and your clients in the event that something happens to you before you have a full succession plan in place. That's really important that you do that. Now, we have a great resource at AssetMark. It's called Advisor Link, and it's available on our eWealthManager platform. It's a technology tool that will provide you with a continuity plan if your broker-dealer doesn't have one. Definitely look at getting that in place. Start to think about what your succession will be, look at the value of your business today, and don't wait until one or two or three years before you're planning to slow down, because there are many things you can do today to make your business worth more tomorrow. So let's jump into it. Let's get talking about your strategy. You know, as we think about this, there's really a short-term and a long-term way to look at it. Short term, meaning, I'm gonna get that continuity plan in place, and that's gonna protect me should anything happen to me. It makes sure my clients are taken care of, make sure my beneficiaries are taken care of. Long term, I'm gonna think about who I eventually want to sell my business to. This is gonna be maybe an opportunity for me to fully retire and go do something else, or an opportunity for me to slow down. Or maybe, this is really popular nowadays, many of us have been in this business a number of years, 20 years, 30 years, and over that time, we have taken on several different clients, some of which might not be our ideal clients. And so as we go through a segmentation of our client base, we may find that there are some smaller relationships that are not ideal, and if we were to package those up and sell them to another advisor, our C clients, our D clients are someone else's A clients, if you can think about it that way. And it will create capacity for us to attract more of our ideal clients, or create capacity for us to transition to a lifestyle practice or to slow down or whatever it might be. This is very popular right now. It's called a partial book sale, and something that you definitely should think about if you've done a segmentation to really analyze, are you spending your time with your ideal clients where you do your best work? And if the answer is no, there definitely is an opportunity to monetize some of that. You know, before you think about selling anything, you really should take time to reflect and maybe even make some notes. Think about your why. Why do you do this business? Why is it so important to you? Why do you want your clients to be taken care of? Why is that such an important factor for you? What is important to you in terms of a partner, in terms of a successor? What do you want from the sale of your practice? Think about what are the things about your practice, your business today that are unique and different and add value to your business. For example, one of the advisors I'm currently working with has three different unique lines of business that she's added to her advisory revenue, creating a diversified way to have revenue come into her business. Do you have something like that, that's unique and different? You know, when you think about what to look for in a potential successor, this is a really interesting list that's really put together from a study. And what they found is personality, very important. No surprise there, right? Secondly, the likelihood to put the client's interests first. Of course, these are things that are very, very important. A clean compliance record. Yes, of course, this is imperative. You know, the next one I think is pretty interesting, and it's something a lot of advisors don't take the time to explore, chemistry with the seller's clients. I always suggest when you're looking at an acquisition or even as a seller looking at a buyer, one of the things you want to do is ask to speak with a couple of the clients. Explore the conversation with the client, how they're engaging with the advisor, what their expectations are, their investment thinking, their tolerance. Get to know them a little bit, even on a personal level, and just make sure that it aligns with your ideal client. You know, on paper, when we're looking at the opportunity to buy a book of business, we may just assume that those clients look like us. So when we do our due diligence and we have a couple of those conversations, that can make a huge difference for you. Now, also, think about your operational capacity to assume additional clients. If you're a buyer, which many of us are. As a matter of fact, the latest statistics I heard is for any one advisor selling anything, meaning a partial book sale or their entire business, there are 83 advisors that raise their hand to say, "I'll buy it." And when you look at that 83 and we start to go through, okay, who can get the financing to buy it? Who has the operational capacity to buy it? Not to mention those things that we just mentioned at the beginning, like the personality, the fiduciary responsibility, all of those things. But do you have the operational capacity to assume additional clients? The number of relationships that one financial advisor can effectively manage, according to the industry best practices, is about 150. So if you have 150 clients now and you're looking to bring on another 150, how are you going to do that? So some things to think about there. As you think about your timeline and where you are in the process, I find that a lot of advisors are not even at the year one timeline. So we're gonna map out some things for you to help you think about over the next 10 years, and that's not too soon to be thinking about it. Over the next 10 years, if you just take a little bit of time every year and you put a little bit more of this in place, it's not as daunting of a task. So we suggest in year one, you really start to think about what you want your firm to look like in the future. What do you want in a successor? Is this an internal person that you're gonna groom and help mentor and bring up through the ranks? Or do you want to work with, maybe another partner in the industry, maybe at a different broker-dealer, even? What's important to you? And then think about how you incorporate that into your business plan. As we go out a couple of years, we want to start to put together that criteria of what we're looking for in a person and start to socialize that we are looking to sell in the next five-seven years. You know, when we get to three years, five years, we really want to think about what that transition plan is gonna look like. Most of the time, when a new buyer comes in, the seller will help transition the clients over a period of, let's say, two years, sometimes three years, out to five years, even. Think about how you want that transition to work. How many client meetings do you want to participate in as you help your new buyer learn about your clients and learn all the incredible information that you've collected over the years about your clients so that they can serve your clients best? Towards the end of the process, you're gonna start actually negotiating the deal. Think about not only the price, but the responsibilities of each party involved, the timeline in which this makes sense for you, how much of a down payment you're looking for, and what you want the remaining term to be. You know, when you're past the point of completing the deal, that's really when the hard work starts. That's when the transition's gonna take place. That's when you're gonna be communicating to clients about this new great successor that you've brought on and all the due diligence you did around it, and how this person's gonna take great care of the clients for the foreseeable future. Now, great to know, we have some fantastic resources at AssetMark to help you with every single phase of that plan and to hold your hand through the client communications, help you customize your plan, and really help you create a plan that's optimal for you and for your buyer. Or in the reverse, if you are a buyer, helping you stand out from the crowd, from those 83 individuals that raised their hand and help you stand out and say why you will be the best partner. Now, if you think about in terms of bringing in a successor, you might think about bringing in someone internally. Maybe there's someone on your team today that you work with that has potential, and you want to bring that person in and have them be your, your ultimate successor, or maybe even for just part of your business. So there's pros and cons to working with a person within your firm or bringing a person in versus selling to someone outside your firm. Think about what's important to you as you document your why. Maybe for an internal person, you think about, well, gosh, I can mentor that person. I can help mold them. I can help create the processes around how I want this person to take care of our clients and really be in control of your legacy there. You know, the challenges in that is it might be tough. It might, you might not find the right person with the right potential, or that person might not have the ability to acquire the financing. You know, there could be some different challenges there. There's all different ideas to overcome those. So as you are exploring those benefits and the challenges, let us help you as a consultant. We can give you some different resources, ideas, and help you think about it. The same thing when you're looking for someone outside of your firm, there's pros and cons for that as well. So you'll really want to start to think about what's important to you and then where we find that person. Well, let's change gears now, and let's talk about how the valuations work so that we can all get an idea today of what our business is worth and some opportunities for making it worth more tomorrow. Now, most of us struggle with really trying to figure out how to value our practice. We hear a lot of multiples being thrown around, of multiples of revenue, of how to calculate that for our business. There really are a couple of different ways to look at it, though, so let's break it down. We look at market comps. One of our partners, Succession Resource Group, oversees all the transactions taking place each year, and they provide us with a lot of statistics in which practices have bought and sold for. That's one method. Another method is discounted cash flows. This is based on the present value of future cash flows of your firm. This is really used when you're selling your entire business, your office space, your staff, your technology, your clients, when you're selling the entire business. More common in what we see a lot of times is multiples of revenue. Multiples of revenue is thinking about that recurring revenue and the non-recurring revenue coming into your business, and then applying a multiple to both of those, and calculating that as a sale price. We have a fantastic tool at AssetMark called a Business Assessment Tool, and it's also in our eWealthManager platform. You can go into this tool and plug in some simple metrics about your business. It takes about 10 minutes to answer some questions, and you'll receive an informal valuation right away, along with a very detailed report, helping you understand for each key performance indicator within your business, why it's important, how you should be thinking about it, and some suggestions for improving those numbers. So definitely something you would want to take advantage of. Now, here is a representation of the statistics that we received from Succession Resource Group, and this is multiples of revenue. What you can see on the top line, that blue line, that's recurring revenue. So we see a multiple of 2.8, and you could do simple back of the envelope math right now if you want to. How much recurring revenue do you have coming into your business? Multiply that by 2.8, and then conversely, the non-recurring revenue, 0.73. So you can calculate that, add those two numbers together. That'll give you a quick idea of where you're at today. A couple other factors that come into play as we look at multiples of revenue and as we look at the sale price of a practice, and, and what this bar chart tells us, along the bottom, it shows us the different multiples of revenues that are applied and the frequency in which they are. So we see there in the center, 2.4x-2.8x and also 2.8x-3.2x. Those are really about half of the time, the multiple being applied to a practice that's being bought or sold. Now, notice that arrow across the bar. Less optimized practices are receiving lower multiples, and higher, more optimized practices are receiving greater multiples. So what does that mean? What is, what is an optimized practice? Well, let's break that down. There's a couple of statistics that factor into that, but also a few other valuation type, more subjective things, that really make a difference in thinking about the value applied. Excuse me one moment. For example, if you have a proactive service model, meaning you have a defined set of services that you're delivering to your clients, and your clients expect this and, and work within this, and are taking advantage of your services, that adds value to your business. If you've had lower year-over-year firm growth, less than 5%, that detracts value from your, your multiples. If the average age of the clients is greater than 65, that also detracts from your multiple. Now, if the average tenure with your clients is greater than five, that adds to your multiple. We have found that Succession Resource Group has informed us that those advisors using AssetMark are receiving a higher valuation more than the do-it-yourself portfolio manager advisors, the Rep- as- PM. And that's because the business at AssetMark is more portable. It's easier to transition. When we look at some different factors about the business that we're considering buying or selling, we want to think about history of limited growth. Why is that the case? The aging client base, maybe a lack of technology integration. One of the advisors I work with in the Bay Area recently bought a practice, and that office had no contact relationship management system whatsoever. As a matter of fact, didn't really use any technology, and so all the information about the clients was on a yellow pad and also in the advisor's head. So that makes it more challenging to transition, to get all of that information over and to put that into your contact management system. So think about those different things and how that can make a difference to you. As we look at the other factors that impact the valuation of a business, think about fee-based business versus commission-based business. Fee-based business gets a higher valuation. It's recurring revenue. We all know the benefits to our clients. Think about if you have a formal marketing plan. Think about what your growth rate is year-over-year. Do you know the financial metrics around your business? All of these points, when well organized, when optimized, can help you gain a higher valuation. You say, "Well, gosh, I don't know where to start with that. How do I get that information?" That Business Assessment Tool that I mentioned in the eWealthManager platform, will provide you a benchmark of where your peers are in each one of these areas, and it will help you learn where you are today, and it will give you suggestions for how to improve that for tomorrow. Definitely something you should take a look at. As we look back from last year and we look at the deals that took place, what did they look like? We saw about half of the deals with a clawback. Now, what a clawback means is you agree to a purchase price, and you agree to a specific set of activities in which to transition the business. For example, the selling advisor is going to participate in all the client meetings for at least the first or the second meeting and will help impart all the information to you so that you can serve the clients really well. If something should happen and less than, you know, let's say, a certain so let's say 50%, some drastic. Only 50% of the clients come over and start working with you as the new advisor, you can build a clawback into the deal to say, "Okay, we're gonna revalue the business, and I'm gonna pay you a lesser price, because this is not what we agreed to in the original purchase price." So that's what a clawback is. Now, that was a drastic example, but just to give you an idea of how that can protect you. The more you build into a deal, though, it might alter the sales price. So that's why we see about half of the deals with and half without. Now, 36% all-cash deals. What's interesting about that is most of us can get financing, and through that financing, there's a couple of our different partners listed on the screen there. Through the financing, you get all of the money up front, so you could, in fact, put 100% down. However, that might not be in your best interest because you wanna make sure that that selling advisor will stay on and do all the things that you've agreed to, right? A note about thinking about where to get financing. The couple of partners that we have listed on the screen are super familiar with our industry. They understand advisory practices and really can give you the financing pretty easily. If you go to your local bank or the bank in which you use for your business, you may be more challenged in getting the financing because they don't understand our business as much. When they think about providing financing for businesses, it's in terms of widgets or tangible things, and our advisory revenue is sometimes challenging for them to understand and put a value around. All right, let's shift gears to talk about executing your plan now. We have some ideas and some framework around what we wanna do and when we wanna do it. When we get our plan together, what do we do with it? Well, we wanna educate our family. We wanna let those close to us know what our plan is and talk about the next steps, and what our future is gonna look like. We absolutely wanna involve our team. Our team is a very important part of executing effectively. Involve them. They have so many wonderful ideas to help you and support you along the way. Your clients, you're gonna wanna let your clients know that you're bringing in a new person, and this person's gonna take great care of them, the same way that you have all these years. It's a real opportunity to inform your business partners, your CPA partners, your attorney partners, all your strategic, strategic partners, to let them know that you're gonna be transitioning and introduce the new person. You know, at the end of the day, you really cannot overcommunicate with clients, with your team, with everyone. You really can't overcommunicate. There are a few points, though, that really can help set you up for success. I always suggest, as you're doing the legal documents, include an addendum that really bullets out what each advisor is going to do during the transition process. Make sure that's clear. Make sure it's not just a verbal discussion. Make sure both of you are in agreement with who's gonna do what by when and how. And that will really help smooth things through the transition. You know, you wanna think of each other as peers and equals. You're gonna be taking care of the clients. You don't wanna see one person as junior or one person as maybe just not equal to you. It's really important that the clients see that and have confidence that you've chosen a person that's gonna take great care of them. You wanna think about the processes and the experience for your client. Really kind of map this out and think about, okay, in the first meeting, it's gonna be the new advisor and me. We're gonna conduct that meeting together. I'm gonna lead that meeting as the selling advisor. But then in our next client meeting, I'm gonna be there, but I'm gonna have the new advisor actually run the meeting, and I'm just gonna be there to participate if needed. So think about what makes sense to you and really map out a plan and communicate that to clients to help them understand what to expect during the transition. When you identify your buyer, when you identify your successor, think about ways that you can use that to educate your clients. It's really interesting. Since the pandemic, I've had many advisors share with me, "My clients are starting to ask me, 'Who's gonna take care of us when something happens to you?'" For those of us that don't have a succession plan in place, we don't have a good answer for that. A great thing to do once you identify a partner is to create some marketing around it. Let clients know you have a plan, and just like the plan you've created for them, they're gonna be taken care of. This is another example of another advisor that has used marketing to communicate who her successor is and how this person will take care of them the same way that she has all these years. So not that she's going anywhere in the near future, she's just identified a person and put that in place in the event that anything should happen, to help her clients rest easy at night. Now, I mentioned a couple of times that we have some phenomenal resources to help you think about your readiness plan, to help you think about what you want out of your business, to help you think about how to optimize your business so that it'll be worth tomorrow. Everything from due diligence questions of what should I be asking a seller? What should I be asking a buyer? To sample agreements and calculators. I guess what I would suggest most is take advantage of that Business Assessment Tool that I mentioned in eWealthManager. It's a really incredible tool that can really educate you about your business and help see where you are compared to your peers, and give you a plan going forward to optimize your business. We wanna help you realize your life's work and, and achieve optimal monetary value out of it. We can help you create that succession timeline. Think about whether it's an internal or external transition, and most importantly, help you execute your plan. I haven't seen any questions come in. I'll, I'll pause here and for just a minute and see if any questions come in. In eWealthManager, you can find that Business Assessment Tool under Business Consulting, or ask your regional sales consultant or ask your business consultant. We can just send you a link and make it really easy for you. Any other questions or comments or thoughts? If you have additional questions, once you receive the replay or maybe even later today, reach out to your business consultant or reach out to your regional sales consultant. We can put you in touch with your business consultant if you don't know who that is, and we can have a conversation with you and get your questions answered. Thank you so much for your time today, and thank you for your business. I hope you've enjoyed our session today, and make sure you come back next month, where we're gonna be talking about planning. We're gonna look at our plan this year and use that to inform building a plan for next year.