Building “enterprise value” is a term we often hear in advisor study groups, at RIA conferences, and via industry publications.
Most, if not all, IARs and RIAs are, after all, entrepreneurial spirits and small business owners who grapple with the daily demands of serving clients well, recruiting and retaining quality team members, and managing their own work/life goals. And, oh yes, also building enterprise value.
But suppose we shift the conversation to creating an “enduring firm” – one that will live on without the founder (or founding team) when a planned or possibly forced exit due to personal issues, disability, or death occurs – versus building enterprise value. In that case, a significant mental shift might occur. While building enterprise value focuses on the financial aspects (and that’s all well and good), creating an enduring firm could be seen as a more purpose-driven, exciting motivation – a life and legacy goal that pays off in more ways than just financial rewards.
How, then, do advisory teams create an enduring firm?
“At ClientWise, we encourage advisors to consider three main value drivers: sustainability, operational, and financial drivers. They’re the levers at your disposal – the tools with which you can directly impact the future value of your business today.”
Sclafani lays out the main value drivers in this blog post, 10 Essential Drivers of Enterprise Value. He also asks some interesting questions to get advisors thinking ahead:
“Think of Warren Buffet. He owns many companies that will operate without him. He's not making day-to-day decisions about the businesses. In our industry, however, it's difficult for advisors to remove themselves from the day-to-day. In fact, they may not want to get out of the day-to-day. Maybe they enjoy being in client meetings or leadership roles such as president or CEO, which is great. But at some point, an enduring firm would have those leaders be able to walk away. It's like looking down with a 30,000-foot view saying, ‘What do I want? What is best for the clients? And what is best for the team?’ All of it is available if you put the right team in place with the right mindset.”
Keen’s firm, which specializes in working with engineers and other corporate employees nearing and in retirement, has grown from zero client assets to about $800 Million in AUM over the past eight years. Engineers understand that something big and long-lasting doesn’t grow overnight. It takes years of planning, preparation and attention to detail. It requires incorporating mathematic, geographic and budgetary limits that must be measured and re-measured. And it requires being flexible and open to change as the project evolves.
“At Keen Wealth Advisors, we understand that, like any engineering project, building a secure retirement is a big and long-lasting task. A mistake made at any stage of the process can endanger the retirement plan's structural integrity. That is why inspired by the approach taken by our engineering clients, we apply a similar discipline as we help engineers and our other great clients achieve their retirement dreams. Having a focused niche and specialization makes it ideal for the right-fit clients; it also makes it more likely that Keen Wealth will self-multiply, long into the future, without having my constant personal attention. In addition, we have built out layers of leadership – including elevating my long-time work colleague and friend Matt Wilson to the position of president – to ensure that firm can self-manage into the future.”
“The aspect I think about is from a human capital perspective,” adds Wilson. “An enduring firm will be able to attract, train, and maintain talent. It’s not dependent upon one person or some small group of people, but it's also growing and fostering the environment for people to grow into future leaders.”
“To build a firm with a legacy aspect to it, first and foremost, you have to have the right people,” Bogart says. “Personnel is extremely important, but you also have to empower those people to act in a capacity that will, eventually, be independent of you. One of the things Bogart Wealth has done is deploy a leadership team. We’re an EOS firm now, so we have department heads who run their teams independently of me. They report back to me, of course, but they make it so I don’t need to be involved every single step of the way.”
In March 2020, Bogart Wealth had about $600 million in AUM; as of mid-October 2022, they were managing about $2.4 billion – and they have another $2-3 billion of AUM in the pipeline.
“One of our core values is being a growth-oriented firm,” Bogart says. “We have done a lot to go deep with our target markets. We are subject matter experts. Integrating financial planning, investment management, tax optimization and tax preparation has led to our success. We're educators at heart. I believe that the creation of value is ultimately what causes people to want to work with someone. Not only do our clients tell their friends about us, but our prospects tell their friends about us. Many firms can get referrals from their clients, but to get referrals from your prospects, that's even more powerful.”
“When you join Blue Chip Partners, you become part of a team that works hard and smiles often,” Steinberg said. “We are highly successful in finding and keeping the right people. Our recruiting success hinges on a four-stage process that starts with a simple conversation. Then there's a quantitative assessment and multiple rounds of team interviews where we're bringing other people into the decision-making process so that our team has equity in the decision. We are not showing up and saying, ‘Here's our new team member; meet Nancy, or meet Rob.’ We've already been in that conference room together and everybody's had a chance to rub elbows.”
“We are hiring ahead of our need – and we’re creating career paths, so people know where they’re going. After all, if the firm isn’t growing, there’s nowhere for people to go, or they’re just stuck in line. Thus, we have a huge focus on organic growth. Also, on the M&A side, if we can find an advisor who’s older or even younger and still growing but needs resources and is tapped out running a solo practice or just doesn't have the support they need, they can merge into Blue Chip. Our goal is to have trained financial advisors we can deploy on day one to support our existing advisory practice. So, if you're an advisor, the idea isn't, ‘Hey, merge into Blue Chip and we'll hire to support you.’ The idea is, ‘We'll support you with people trained in our system with our processes.’ But I can’t emphasize enough how important it is to create career paths and always be growing, so people are excited about their roles and see the potential rewards if they stick with us over time.”
Advisors should focus on creating a business someone else would want to own – even if they aren’t ready to sell or transition right now. A sale-ready business gives any privately-held business more options – and it becomes much more fun.