Journal of Financial Planning: September 2017
In 2017, Marianela Collado and Matt Saneholtz accomplished what most NexGen advisers only dream of—they acquired a multi-million dollar RIA and took over the business of a respected 40-year veteran.
Their path to acquisition wasn’t a trail of shrewd targeting and cunning negotiation; it wasn’t a one-and-done deal, buyer-take-all, seller-walk-away type of transaction. Instead, it was a strategy of partnership, patience, and teamwork. Where many next-generation professionals across the industry have become frustrated in their pursuit of ownership, calling for disruption of the current business model in order to step into their place as leaders, Matt and Marianela took a different path. They established a long-term goal. They created alignment with their founding adviser, and they adopted a plan intended to provide continuity for the clients while recognizing the entrepreneurial success of the founding adviser, Benjamin Tobias.
Matt was the first of the successors to join Tobias Financial Advisors, signing on shortly after college. His journey follows a classic story of learning the business from the mailroom on up and mastering every job that was asked of him. Under the founder’s direction, he learned to keep the business running smoothly while honing his craft as a financial professional and earning his credentials as a Certified Financial Planner and Chartered Financial Analyst. He toiled diligently for seven years before receiving his first taste of ownership. It was a small stake, but the change in perspective was instant. “Becoming an owner flipped a switch,” Matt said of his initial investment. “I no longer had that nine-to-five mentality. I felt like: it’s really mine.”
Still, as Matt hit his professional stride, there was plenty of temptation to go it alone. Buying a minority interest in Tobias Financial Advisors was taking the long view, and it was an approach that came with risks and trade-offs. As Matt describes it, however, most of those trade-offs were positive. He wasn’t stressed about bringing in the next new client, because that was covered by the founder. Instead, Matt could focus on his strengths, which were improving client service and operations. Additionally, the team provided synergy and scale that was impossible to replicate as a solo adviser.
Finding the Missing Piece
The founder started treating Matt as a partner and including him in the business decisions—this included Ben’s long-term plans. The thinking was that if Ben were ever to slow down, the team would need another senior adviser to take his place—someone who could balance Matt’s strengths with good strategic vision and the ability to fuel new client growth. In the absence of such an adviser, Ben was on the lookout for buyers or possible merger partners who could take over and extend the firm’s service capacity. But for Matt, selling or merging the business would almost certainly mean a dilution of his equity and a possible subordination of his role on the team. He decided to focus his energies on the recruiting path to address the issue.
Matt met Marianela at an industry event in 2014 and vetted her as a potential partner over several meetings. He discovered she had similar professional credentials as Ben and that she seemed to complement Matt’s skill set—she was a good strategist and an aggressive planner. After 15 years at a major trust company, she was looking for a new challenge. “I could have stayed at my old company indefinitely, but I’m a bit of an entrepreneur,” she said. When she met Ben, they had a good rapport and the path ahead seemed to become even clearer. “So I sacrificed corporate pay and bonuses in the short term for the opportunity to come on board, work hard, and one day become an owner of Tobias Financial.”
Ben saw the value of making Marianela an owner right away; he knew it was good for the business and for the clients. Marianela was the missing piece to the plan that he had initiated with Matt, and Ben knew that to retain her and support his eventual (still unscheduled) retirement, he would need to provide her an equity track. They chose FP Transitions to consult and design the plan.
Developing the Succession Plan
They learned that designing and developing a succession plan can be a complex and iterative process. The team explored many different avenues and possibilities. As each potential path was modeled, they had an opportunity to examine their goals and their risk tolerance: did the plan move too fast for the successors, or for the founder? Or was it too slow? Was it financially viable? What if the plan didn’t work out? As they worked together to answer these questions, they developed a plan that worked for all three of them.
FP Transitions’ analysts designed multiple strategies for the group to consider, addressing issues such as ownership, compensation, growth and, of course, taxes. Building on the existing structure, the plan needed to be fair to Ben and Matt while presenting a compelling path for Marianela.
The first iteration of the new plan allowed Marianela to purchase her initial ownership stake, gaining a foothold on equity and allowing her to show her value to the team. In this draft, her success could result in multiple stock grants, which would be awarded over several years. Ben reviewed the model and advocated for a more aggressive plan that conveyed his commitment to her future at the company.
A new strategy was developed that allowed Marianela to buy more equity faster and which would result in equal ownership with Matt. The deal was fine-tuned and the team agreed to a plan that supported an evolution of their service model and a gradual transition that balanced the financial obligations of the successors. In each of the plan designs, the founder retained the majority over a 10-year timeline.
Marianela bought her first shares of stock in Tobias Financial and became an owner in 2016.
Upholding a Legacy
With the team in place and the details of the long-term plan settled, the partners went to work on the business. As part of the evolution, they considered renaming the firm to pivot the company away from the personal branding of “Tobias Financial Advisors.” Marianela was the one who proposed a contrary maneuver—instead of de-emphasizing the founder’s name, she suggested they embrace his legacy and hold out their position as successors. Matt and Marianela were committed to building on top of what Ben had created, and this was an important message to send clients. They underscored this concept by including all three senior advisers in key client meetings and laying the foundation of a trusting relationship with the future leaders.
A few months passed before Ben’s personal situation changed and life events pulled him away from the office for longer periods of time. Matt and Marianela needed to step up and run the business without him. “Ben saw the potential in both of us,” Marianela said, “but managing the firm in his absence really let us prove that we could do it.”
Seeing their teamwork and effectiveness with staff and clients gave Ben the confidence he needed to truly pass the baton. The 10-year plan became a five-year plan. FP Transitions modeled a new scenario where the company purchased much of the founder’s stock and placed him in a minority position.
As they explored the possibilities, the timeline continued to shrink, until the partners agreed to a plan that resulted in a full buy-out of Ben’s ownership. The accelerated plan required outside financing, but the consulting team introduced a bank and oversaw the process to document the deal and secure financing.
After investing 12 years of his career, Matt’s patience is finally paying off. “The business has become a part of me,” he said of completing the acquisition. As the relative newcomer, Marianela has focused her energy on proving her value to the clients and deepening her partnership with Matt. She provides a fresh perspective and vision for the business, while she describes Matt as “the engine of the firm.”
Ownership offers unlimited opportunity, and Matt observes, “I know that I’ll only be able to take out what I put in.” Ownership also means unlimited accountability and the duty to uphold Ben’s legacy. “I have personal responsibility for the team and the clients.” Marianela says. “We always had Ben before; now it’s up to us.”
Though no longer an owner, Ben continues to participate in the firm and to support the new leaders’ vision, but in a manner that allows him to enjoy other priorities in life.
Christine Sjolin leads business development and corporate relations at FP Transitions. She helps advisers and the institutions who support them create sustainable businesses designed for succession and growth.
Sidebar:
Lessons Learned
Be patient. Listen. Learn. “If you’re going to be successful, you need to see through to the opportunity,” Marianela advises fellow next-generation professionals. “Choose your battles. Don’t expect to step into a firm and change everything on day one.”
Many companies that need successors were built by solo entrepreneurs who are used to having things done their way. While the founder’s thinking may sometimes seem antiquated or frustrating to a next-generation adviser, recognize that experience counts. “Most of the time,” Matt adds, “Ben was right about things.”
Check your ego at the door. Acknowledge the value that each partner contributes to growing the business and keeping it running smoothly. Building a sustainable business and carrying on a legacy necessarily requires teamwork and cooperation. “We really are a team,” Marianela says. “You have to make sacrifices in some areas for the benefit of everyone.”
Start early. Get the next generation involved in client service earlier rather than later and conduct a strong hand-off from the founder to successor. Showcase the next generation’s skills to the firm’s most valuable clients during client meetings. Adopt a firm-wide service model.
Hire an experienced professional. There are many options when it comes to designing a succession plan, which are easily overlooked with a DIY approach. Plus, an experienced consultant will be able to expose possible pitfalls and enhance the alignment between partners, rather than letting negotiations spin out of control. “Without the help of an independent, third-party consultant, our result would not have been attainable,” Ben says. “No doubt about it.”