Independent advisers who have not planned how they will pass on their business when they retire — or actually die while still running their firm — may now have a backstop.
Adviser aggregator Focus Financial Partners LLC is offering registered investment advisers a flexible succession planning strategy where the owner can set up the deal, but decide later whether to execute it.
“This is like retirement insurance,” said Rudy Adolf, founder and chief executive of Focus Financial. “It's like an option to do a deal.”
The service is aimed at firms managing between $50 million and $300 million in assets, he said.
The process begins with Focus examining how ready a firm is for succession and a transition to new owners. The goal is to have the owners formulate policies and make changes that would make the business more conducive to succession, Mr. Adolf said.
Heavily proprietary technology, for example, would be very difficult for another advisory firm to come in and take over the client portfolios, he said.
Focus Financial, whose firms manage about $52 billion in client assets, isn't charging for this initial diagnostic at this point, even though Mr. Adolf said even this initial step will provide real value to the RIA to prepare for succession.
The advisory firm would then choose a Focus partner and sign an agreement to have them manage their business once the principals decide to activate succession. The financial terms of the deal would be set in that agreement. Annually, firms would have to certify their transition plans were up to date and either side could terminate at any time, Mr. Adolf said.
Buckingham Asset Management, a partner of Focus Financial, signed such an agreement last week with owners of CLM Capital Management LLC in Maine, which until that deal had been one of the 75% of advisory firms without a succession plan.
“We believe we're solving one of the single biggest issues that the industry has,” Mr. Adolf said.
