Journal of Financial Planning: April 2022
Amelia Kurtz was an entrepreneur out of Wheaton College and quickly got into banking, where she spent time at a large regional bank and a small community bank, running financial services teams, before launching her own limited purpose bank in Portland Trust. She is passionate about the humane treatment of animals and the advancement of women and girls, and serves as an Olympia Leaders Advisor for the Olympia Snowe Leadership Institute.
Jim Macleod, CFP®, took a circuitous route to financial planning following a path through UMaine, UNH, and BU’s School of Law that found him a practicing attorney in New Hampshire. Coming home to Maine, Jim switched gears and entered the financial services industry where he managed wealth management groups at medium-sized banks before co-founding Portland Trust. Jim is PT’s senior investment strategist and specializes in making complex legal and financial concepts accessible.
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In 2015, we took a chance. After extensive careers working in wealth management at traditional banks, we had grown tired of being in a business that was not well understood by the traditional banks. We would frequently joke that banks were a place where great wealth management ideas go to die. So, we did something somewhat radical and decided to open a new client-centric limited purpose bank from scratch where we could focus on customer service and move “wealth management” closer to “family management.”
The new Portland Trust was designed to be small and customer-focused instead of growth-focused, so we could truly enter into partnerships with the families (and some small institutions) we helped. We separated ourselves from the grow, grow, grow world of financial services that was becoming increasingly commodified and instead focused on creating a sustainable business that met the needs of families with increasingly complex wealth-management issues.
As you can imagine, that came with challenges. There’s a reason we’re one of just two institutions of our kind to have been founded in Maine in the last 20 years—and the other has already been acquired by an entity affiliated with a national insurance company.
Not least among these challenges is succession planning. For one thing, because we’re a limited purpose bank and not just a typical financial advisory firm, our succession plan is required by banking regulators (there are 15 states that require succession planning for nonbank financial advisers, at last count, and it is a best practice for anyone working with large sums of other people’s money).
Specifically, we are subject to evaluation of our management and administration as one of many factors that go into scoring the soundness of our institution. A portion of what we are evaluated on is our management depth and succession planning. We have to update our succession plan annually and submit it to our board for approval. We can assure you that our regulators make a qualitative review of the plan rather than a simple box-checking exercise. They want to see, among many other things, that we’ll be able to provide continuity of service and that we have the human capital to sustain a significant disruption.
Luckily, we are especially well-situated should the two of us be hit by a bus. Our emergency succession plan is made relatively straightforward by the fact that we share ownership of the company with the larger Androscoggin Bank, which is familiar with all of the ins and outs of succession planning. Moreover, we partner with service providers for things like IT infrastructure, web interfaces, and the mechanical pieces of wealth management—a so-called plug-and-play model. If worse came to worst, we could flip a switch tomorrow and we are confident that our customers would continue to receive competent financial services without disruption.
Of course, having a break-glass solution isn’t a true succession plan. For us to ethically be OK with eventually moving on to retirement, we need to have a succession plan that is people-focused; we need the right people to take over for us so that the people we care about—our clients—receive the care and attention they have come to expect and deserve.
Competing for Successors
In finding those people, however, we face some barriers. Located as we are in Portland, Maine, we are far from the traditional financial centers. We don’t have the scale or customer base to offer compensation packages that would be competitive with big firms in New York City, Chicago, or San Francisco. Finally, our business plan and mission aren’t designed to produce big bonuses or big year-over-year growth and may not be attractive to many who get into financial services for the payday.
Our goal is not to grow by any means necessary because our experience has been that doesn’t end well—for either the company or the client base. Our goal is to provide responsible and sustainable growth, to still be a well-run company, and to operate in a relatively small geographic area. Within that context, we’re a specialty attraction. It’s really an intangible attraction to an employee base that relates, an employee base that is passionate about the delivery model, from the front end to the rear end, in terms of having accountability and deliverables that they can control.
That appeals to someone who wants to provide quality services and make a difference in people’s lives. That’s not everybody.
With all of that said, we think we have a pretty good succession plan in place, and we thought we’d offer some tips for those who find themselves in the same situation, as well as provide some insight into our thinking as we consider how we want to exit the business we love so much.
Developing a Succession Plan
Our succession plan is a living document. This goes for just about any plan or policy, but it’s important not to come up with a plan and then file it away until the day you “need” it. Not only do we review our succession plan annually as part of our strategic planning process, but we are constantly thinking about how each new hire, each promotion, and each new service provider changes the way we think about succession.
We are radically transparent with each and every one of our hires, especially those who are clearly doing the same kind of work that we do as not just the CEO and president of the institution, but as stewards of our customers’ wealth who are hands-on with decision-making and involved in complicated legal matters. From day one of the interview process, we talk with our potential employees about how we see the business progressing. Our current employees are always aware of what might come next and the opportunity it presents for them. We think it is deeply unfair to keep employees in the dark about our plans for the future. This allows them to feel ownership of the organization before they may actually have an equity stake.
Quality of life is a motivator for a large portion of the generation just coming into the workforce now—we think this is an opportunity for us. While many of us grew up in the 1980s and 1990s, when growth was king and the person with the most toys at the end was declared the “winner,” we know that many young professionals today are looking for work-life balance (or, as a current employee calls it, “life-work balance”). We intend to appeal to those for whom a stable work environment, reasonable hours, generous family leave allowances, and a rewarding career are primary motivators.
Some of you will read that and think, “They just don’t want to pay competitive salaries.” If so, you aren’t the sort of person who is likely to be part of our succession planning.
One of our recent hires and a vital part of our current succession plan came to us from practicing law in New York City, though he had done his undergrad in Maine. He tells us that many of his classmates found themselves in New York at big financial services companies or law firms and admits that few of them went to law school with dreams of practicing estate planning, but he’s seeing a shift toward long-term thinking and a prioritization of quality of life.
And while this is clearly just the anecdotal observation of one Gen Z employee, he also reports that many of his classmates have a growing desire to feel a human connection as though they are really improving other people’s lives, rather than just furthering the interests of a large and sometimes faceless corporation.
We believe that when you do the right thing, the right things happen. We just have to find people who believe in that for themselves as well as the client.
Much of what we are looking for is a mindset, rather than a skillset. When we’re adding staff or building our team, we focus more on that buy-in to our vision of sustainability and community building than knowledge base or specific experience. The mindset and attitude have to be there; the other aspects of running the business we can teach.
Our firm is organized in a hub-and-spoke model so that succession can focus on people and not on technology or processes. By outsourcing our IT infrastructure, back and middle offices, and other operational services, we not only guard against emergency disruptions, we also allow ourselves to spend time focusing on the people part of succession and not the labor intensive or tedious technological details that might arise. Never having to worry about upgrading our servers or “downtime for maintenance” or adding an FTE to ops is a huge weight off our shoulders and a huge benefit for being able to smoothly transition.
Two Phases of Succession Planning
We are constantly looking 10 years out, with the intent of beginning our succession transition in the second half of that period. Given our current situation, where neither of us have any intent to go anywhere, this allows us to see the succession plan in two distinct phases.
In phase one, we’re looking to identify the right people to take over and develop their skills and experience to the point where they are ready to begin taking on true responsibilities of ownership. In this first five years, we’re evaluating whether the people we have onboard have that ownership mentality and, if they don’t, how we can either cultivate it or decide it will simply never exist.
Once we’re confident we have the people and skills in place, we’re theoretically ready to trigger the succession plan’s second phase and begin the transfer of responsibilities, authority, and ownership. If we get to this place while we still don’t see ourselves ready to retire or move on, we’ll simply continue to evaluate the plan, make sure we still see ourselves as ready to trigger phase two, and look at internal and external factors that might get in the way of successful succession.
Once we decide we’re ready to go, will we change it to a five-year succession plan? Will the plan expand to 15 years to make allowance for the fact that the new team will immediately have to have a new succession plan of their own? These are questions we are constantly re-evaluating.
We also know that current trends in society work against us as much as they sometimes work for us. While it’s true that the current generation entering workforce maturity might value quality of life more than previous generations, they also value flexibility and independence more than previous generations. For many potential successors, looking out 10 years might be a little intimidating! That’s understandable. We hope that our transparency is persuasive enough for our employees to respond in kind. If they don’t want to be part of the succession plan, that’s OK—we’re able to take that into account and manage their role in the organization appropriately. We do, however, let them know how that changes our view of them and the responsibilities we impart to them. Such is the modern employer–employee relationship.
Part of our continual evaluation of the plan has to be honest conversations with our vital staff members. As they plan their own futures—building families, professional networks, and skill sets—it’s understandable that their own priorities may shift and evolve. That might throw a wrench in our succession plan, but we would be foolish to think our business plans would take priority over an employee’s pursuit of happiness.
Keeping Clients in Focus
We know, too, that our philosophy of focusing on sustainable, manageable growth matches us up with a certain kind of customer base, one that isn’t solely focused on maximizing annual growth. Further, that sort of customer is more likely to begin to think of us as one of the family, a trusted confidant that goes well beyond a “financial adviser.” That sort of customer brings with them a moral imperative that we take to heart and is at the very core of our succession planning; we know that we’ve become part of their own strategic planning.
If we get this wrong, we run a much greater risk than simply failing to grow a client’s portfolio. We run the risk of introducing uncertainty and anxiety in our clients’ lives when they least expect it. Part of how we create that peace of mind for families is by communicating clearly with them who we’re looking for in the people who will be on the other end of the phone and Zoom calls in the future. We know the emotional relationships our clients develop with each and every employee with whom they interact.
We know the emotional relationships our clients have with us. They are reciprocal.
That is a responsibility we take very seriously, and it drives the seriousness with which we take our succession planning. It is our legacy, yes, but more importantly, it is also our clients’ future.
