Trends in Advisor Succession

In this 1 Minute Q&A, Todd Doherty, one of our M&A Experts answers the question: What are some trends you are seeing in Financial Advisor Succession?

Service Overview

Ensure that you are compensating your AFA correctly

Designing a compensation package for your AFA can be a challenging task. How can you structure a deal that is competitive, creates the right incentives, protects your practice interests, and fairly compensates your AFA for his/her work? It is definitely not a one-size-fits all solution. At KMG, we have helped countless advisors through this important transition step, helping them carefully design each aspect of this arrangement. We help them consider the following:

• Differences in risks/responsibilities between a W2 employee versus an Independent Contractor
• Franchise rules regarding equity sharing
• How to protect yourself from "bad breakups"
• Design of a customized compensation model for your specific situation (salary, payout grid(s), practice interests, bonuses, and more)
• Projecting this arrangement into the future to see the long-term viability and profitability for your practice
• Impacts to your succession plan

Key Areas Addressed

  • Business Management
  • Team Management
  • The Client Experience
  • Continuity & Legacy Planning

Service Provided

The AFA Analysis is conducted over a series of 2-3 meetings and covers these areas:

Part I. Practice Overview and AFA Value
• Overview of your practice and the background of the AFA or prospective AFA
• Review of your client base, including client types and segments
• Current mix of business and sources of revenue
• Role of financial planning in your practice
• Your placement on the fee grid
• For AFAs - their existing and proposed responsibilities, their production and opportunities

Part II. Expenses
• Deep-dive into the expenses incurred to support your AFA both now and in the future
• Comparison of W2 versus 1099 Contractor
• Employment Fees, Taxes, Benefits
• Changes to expenses over time as AFA progresses

Part III. Compensation Design
• Review of desired behavior
• Aligning compensation to that behavior
• Salary, comp split, hybrid, and/or bonuses
• Modeled compensation system
• Equity sharing, if applicable

Part IV. Profitability
• Determining what is necessary to achieve profitability
• How should the compensation system change over time?
• What goals must the AFA hit to be profitable?

You will walk away with two different written reports:
• Advisor-Facing Summary and Profitability Report
• AFA-Facing Illustration of the total package being offered

Parties Involved

Advisor (Business Owner), Financial Analyst

Service Frequency and Duration

Recommended frequency is once prior to the AFA hiring, and as needed to update the arrangements
Meetings: Generally two to three phone consultations

Expected Outcomes

Advisors will feel confident about the AFA arrangement that they have designed.

Our AFA Analysis provides:

•Written advice about your specific AFA arrangement
•Customized incentive model showing the advisor's profitability of the arrangement
•Written AFA-facing compensation model, showing the offer being presented
•Five-year projection of the AFA arrangement, and more...

How to Purchase This Service

Available for Ameriprise clients only: $1,395