Alex Murguia is the managing principal of McLean Asset Management Corporation in McLean, Va.
When did you develop your succession plan and what led you to implement one?
We developed it three or four years ago. It was really just our success that drove it. You really don't need a succession plan if you have a really tiny firm because there's just not much to pass on. We were growing the firm with substance and we always took the view that we needed to institutionalize the firm and get beyond just one person. That naturally involves succession planning. For someone like myself (who is younger), it also tells me what's down the road. No one likes to work in a vacuum, speaking in terms of the up-and-coming generation.
What were your priorities with the succession plan?
The thinking was simple: It was really just buying into the company and if, at some point, something should happen to Dean (Umemoto, founding principal and president of McLean Asset Management) then I have the right to pick up the controlling share. That was really it. We had a formal valuation done and we just built it off of that. What you find is that a lot of firms have trouble letting a younger generation buy (a share of the company) because nine times out of 10 they are never going to be able to afford it. So you almost have to think about doing it before you actually need to do it because if you wait until the firm is at $500 million, it becomes much more daunting of a task.
We're probably on the cusp of beginning to think about bringing in other advisers (as shareholders) beyond just Dean and myself, but right now, we have contracts in place with our advisers in which, frankly, the revenue they get is equivalent to an ownership-type revenue. So it hasn't been an issue at all, and the way we manage our company, everyone has a voice, regardless.
What were the biggest challenges in developing this plan?
I would imagine the most challenging part is you and your partner getting on the same page, but for us, it wasn't. We were literally on the same page from Day One. We really have a very special relationship. I think we were actually able to avoid what are the biggest challenges for a lot of people, which is figuring out how much you are worth and how much did you contribute.
There's always a thing where the new generation thinks, “If it wasn't for us, you wouldn't be where you are,” and the older generation retorts with, “Hey, I'm the one who took the risk,” and so there's always that sort of war. But the reality is, we never had that. So there is a page that everyone needs to get on, and once that is done, really it's just paperwork processing. Getting that paperwork together while also doing your daily work to me was the biggest issue, but you can see, that's just a logistical thing.
What does this plan mean for your clients?
The reality is that from Day One, Dean and I have been trying to institutionalize the firm and by that, I mean if someone gets hit by a bus, the firm is going to continue. A piece of paper isn't going to solve that problem for you; it may give you the illusion of it from a legal standpoint — and you need that, don't get me wrong. But the reality is that if the lead adviser is the face of the company and means everything for the company, then you're going to be in trouble.
I think even before a succession plan, it's really about just institutionalizing a firm and that involves letting clients know that it's not just one person behind the firm but a team of people. The moment it becomes (about one or two people), succession planning is still needed but you can use that as your false panacea toward institutionalizing the company.
With you (39) representing the younger generation and Dean (70) representing the older generation, what were the differences in terms of what you wanted out of a succession plan?
Besides the obvious, in terms of the fact that I want to make sure my efforts are rewarded, and he wants to make sure his previous efforts are also rewarded with a capital event, there really weren't any hidden agendas because we really do have a good relationship. I didn't want to get one over Dean and he didn't want to get one over me. We really came at it in terms of doing what's good for McLean and what seems reasonable. Maybe I left money on the table and maybe he left money on the table, but we're fine.
