Adviser’s Consultant: Building a flexible succession plan

Jack Hillis isn’t quite ready to stop working with clients or give up his lifestyle advisory practice, but at 74 years old, he knew he needed a succession plan in place.

His solution was to complete all the paperwork for a sale that will take place when Mr. Hillis decides he’s ready to “retire or croak,” he said.

“I read a few years ago about an adviser still working at age 99, and my goal is to break her record, but I wanted a contingency plan to protect family and clients, just in case,” he said. “I wanted a succession plan where I continued to stay in the business.”

Mr. Hillis, who is celebrating his 50th year in the business, opened Hillis Financial Services in 2001 and currently manages $320 million for about 500 clients.

While he doesn’t have any immediate plans to retire, he doesn’t want his clients or his wife worrying about the future of the business, so he struck a deal with Mike Allard, owner of CalBay Investments, that has everyone sleeping easier.

Mr. Allard, 52, has known Mr. Hillis for 40 years. The two first met when Mr. Allard’s father was teaching Mr. Hillis the financial services ropes early in his career.

For Mr. Allard, who has already completed five acquisitions and manages $565 million, the acquisition and succession plan follow a blueprint created when he acquired his father’s advisory firm in 2010.

The structure of the deal will include a payment equal to 85% of the sale price, with the remaining 15% paid out over five years based on revenues over that period.

That covers the sale, but what makes the deal work is the succession plan, which involves gradually melding the practices together through personal interactions and meetings with clients.

Mr. Hillis said that while his San Jose, Calif., firm is still technically separate from Mr. Allard’s business, which has offices in nearby Danville and Santa Clara, any new clients Mr. Hillis brings on are considered co-client of both firms.

And Mr. Allard is ready to move Mr. Hillis into one of his offices at some point to help reduce expenses as he transitions toward retirement, as Mr. Allard did when he was acquiring his father’s firm between 2007 and 2010.

“I’m trying to take away those long-term obligations, so if Jack wants to maintain an office with me after his lease expires, I just won’t charge him rent,” Mr. Allard said. “We call it a sunset program. We’re just taking more things off his plate as far as office rent and personnel costs.”

For Mr. Allard, the financials add up, and both parties appear happy with the deal.

The unknown in the sale agreement is the forward revenue for five years after the sale. If enough of his clients leave in the wake of the sale, Mr. Hillis might not get his full 15% portion of the sale price.

But Mr. Allard said that in his five other acquisitions, the payout always ended up above that 15% level.

“We uncover assets because we are motived,” he said. “Plus, we’re a fresh set of eyes looking at the business.”

Mr. Hillis said that initially his clients wondered why they were being introduced to Mr. Allard and his firm.

“I explained to them that I have no plans to go anywhere, but there is a contingency plan in place,” Mr. Hillis said. “We’ve already done all the legal documents, so if I decide to step away or get carried off, this means my wife doesn’t have to worry about what she has to do with the practice and my clients are being taken care of.”

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