I recently had the opportunity to present to a group of students from Texas Tech University about the industry they were about to enter into, what to look for in a future employer, and what to avoid. Before getting into the specifi cs of my conversation with this group of next generation advisors, it is important to acknowledge the work of people like John Gilliam, PhD, CFP, CLU, ChFC, who is an Associate Professor and Director of the Master’s Programs at Texas Tech University in the Department of Personal Financial Planning. John’s work, and that of many others like him at the university level across this country, is critical to the future of the independent fi nancial services industry and our ability to help advisors build enduring and trans- ferable businesses.
The students we spoke to wanted to know how they could identify a business or a fi rm that could provide the necessary level of mentoring and one day offer them an ownership opportunity, if they earned it of course. They also wanted to know how they could identify and avoid a practice model that would not survive its founder’s retirement, death, or disability.
Our advice to every G‐3 advisor prospect we talk to is this: First, con- centrate your search on the independent side of the industry where there is a culture of ownership. The wirehouse side, even the insurance side of this industry as it is currently structured, offers an opportunity to make money and to learn, but zero opportunity to become a shareholder or an owner with a real equity position. Those can be good models to learn your craft in,
but they are the wrong models if you aspire to ownership or becoming an entrepreneur in your own right.
Second, understand that you may need to separate the learning oppor- tunity from the ownership opportunity, at least in the early years of your career. We tell you this, G‐3, so that you can separate an opportunity to learn and earn an income at an independent practice, from an opportu- nity to accomplish those goals and participate in an ownership track with a business or a fi rm. In other words, in some circumstances, it isn’t enough to want to become an owner—many practices are too small to ever offer the opportunity, but that doesn’t mean you can’t benefi t from working there.
There are tens of thousands of small, independent practices that offer an opportunity to learn and grow in a hands‐on environment. Just understand what the long‐term prospects are going in.
Third, do not accept a revenue-sharing arrangement (where you receivet a percentage of everything you produce) or any form of an eat‐what‐you‐kill compensation structure. Negotiate for a salary and bonus structure. If you’re offered a revenue-sharing arrangement, run . That is an operation that will die in the end anyway; it is just a matter of when. If you are in the position of having to sacrifi ce an ownership opportunity in an enduring business in order to get a job and make some money, don’t do further damage by tak- ing on the risk of ownership‐like production before you’re ready. There are better jobs available.
In terms of how to approach an employer with your desire to become an owner, be honest, and be humble. Tell them that you’ll work hard (and understand that my generation does not consider 8 to 5 to be hard work!), and that you’ll do what is necessary to succeed within the boundaries provided to you (i.e., recognize that this is a highly regulated industry where initiative is appreciated, as long as you don’t go too far), and that you’re willing to invest a career, but would like to have an opportunity to buy‐in to the fi rm; say it that way, or they may think you expect to be compensated with ownership. Gauge their reaction and adjust from there. If they react negatively, or they seem put‐off, understand that more than 95 percent of the practice and business owners in this industry are one-owner, one‐generational models. You can’t fi x that, so in the end, or at some point early in your career, you’re looking for the 4 percent or 5 percent that can offer something more.
They’re out there.
Here’s how to fi nd them. In general, you want a fi rm with at least 60 percent recurring revenue (fees or trails). You need a fi rm that is an entity (look for an “Inc.” or an “LLC” after their name). You need them to be with an IBD or a custodian. There are more than 4,000 broker‐dealers in this country, and you’ll have heard of maybe 50. Focus instead on the leader of the business you want to work for. When the opportunity arises,
or through your own due diligence, ask and obtain answers to these simple questions:
■ Is this business strong and growing?
■ Does your business have a succession plan?
■ How many owners does this business currently have?
■ Do you anticipate this business having more owners in the future?
The independent fi nancial services industry is an excellent career choice.
Make the fi rst step into it a good one.
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CHAPTER 5 5
The First Step—A Continuity Plan