Exploring New Opportunities: A Strategic Framework for Advisors
At Advisor Solutions by Purpose, we frequently speak with advisors at various stages of evaluating their next career move. Many in the early stages share a common sentiment: they know they should be exploring their options, but the process feels overwhelming and they don’t know how to get started. The uncertainty of how to begin, what to prioritize, and how to make the right decisions often leads to putting off the evaluation altogether.
The truth is, it's easy to become consumed by the day-to-day demands of running an Advisory practice. However, the choices you make today will shape your future success. It is important to carve out time to work on your biggest investment - your practice. Take time quarterly and annually to stop working in the business, and spend time working on the business. Think about it as a preparing an annual or quarterly review for yourself — just like you do for your clients. Whether you're actively considering a move or simply starting to think about your options, there's never a wrong time to take a step back and think strategically about your next move.
In this article, we’ve outlined a clear framework to help you assess your current situation, evaluate your alternatives, and confidently make an informed decision on transitioning your business when the time is right.
1. Assess Your Current Situation
Before considering a transition to a new firm, you need to take a hard look at your current situation. What are your business goals, and how is your current firm helping—or hindering—your ability to achieve them? A key part of this process is understanding whether your current situation aligns with where you want to go.
Start by identifying the five most important objectives your practice needs to achieve in order to meet your long-term goals. Then, score each objective on a scale of 1 to 5 based on how well your current firm is supporting those goals.
For example, if your primary goal is to double the size of your business in five years, your key deliverables might look something like this:
Deliver an exceptional client experience - 3
Leverage best-in-class technology to build scalable processes - 2
Build a brand that reflects our unique personality and target client - 3
Attract and retain top talent within our practice - 2
Create a culture of continuous improvement & innovation - 3
You may find that some of these scores are high (4’s or 5’s), indicating that your firm is providing significant value. But in other cases, these scores may be much lower—perhaps even 2’s or 3’s. This could be a sign that while your current situation and structure is not preventing progress, it's not helping you reach your full potential either.
If your firm isn't currently aligning with your needs, don't wait until it becomes critical to begin evaluating your options. Planning ahead gives you the flexibility to conduct proper due diligence without the pressure of urgency. Many advisors, however, fall into the trap of creating obstacles or justifications that delay the process. Some examples:
“My firm is working on a new tech solution that will solve all of my current problems.”
“I have debt owing to my company that I need to repay before I can seriously consider this.”
“I’m not sure how my clients would react if I moved, so let me float the idea with a few first”
While these obstacles may be reason to stay put, they shouldn't hold you back from exploring your options. A reputable transition partner can help address these issues—whether it’s providing better tech with a stronger product roadmap, ensuring smooth client transitions, or finding ways to settle financial obligations so that you can move forward confidently.
2. Prepare to Evaluate Your Options
Once you've assessed your current situation, it’s time to begin evaluating your options. This stage is about exploring alternative firms and structures that could better support your goals. To evaluate firms effectively, you should enter these meetings with a solid understanding of your business and its portability. This will allow you to weigh the upfront incentives with the key factors that may help or hinder your transition efficiency.
Here are some of our recommendations to help guide your decision-making process:
Establish a Transition Committee: Form a small, tight-knit group of key team members who will serve as your transition committee. This team should include individuals with the necessary expertise to evaluate the potential new firms through the lens of your goals. Remember, this group should be small to ensure discretion and to avoid leaks of sensitive information to your current firm.
Consult with a Lawyer: Before moving forward with any firm, have a legal professional assess your current contract. For example, do you own the rights to your clients, and is there anything in your contract that would prevent you from taking your business elsewhere? Understanding the legal implications is essential to avoid unforeseen problems at later stages.
Understand Your Expenses: Knowing your current and future cost structure is crucial. How much do you spend annually on staff, technology, marketing, real estate, and other operational costs? You will want to factor these into your evaluation, especially since firms may offer compensation packages that look appealing at first glance, but could leave you with fewer resources after expenses are deducted.
Look to a peer: Has there been another advisor or team at your current firm that has left within the last 12 months? What can be learned by their experience? Some firms will make leaving more difficult than others. It’s a good idea to gather as much information as possible so that you can strategize effectively.
3. Begin your Due Diligence
When it comes time to conduct your due diligence, it's essential to stay laser-focused on your primary business goals. While it might be tempting to get distracted by cash offers or attractive incentives, these should never outweigh the fundamental needs of your business. Once you've spoken to a handful of firms and have a good understanding of how they can help you reach your goals, there's a number of secondary factors that should help to narrow down the list to one or two:
Here's a checklist of secondary factors to evaluate during your due diligence:
Economics: What is the payout structure after expenses? Will you own your practice, or are there restrictions on your ownership or business valuation? Be sure to evaluate whether the firm is a good financial fit and whether they offer a sustainable economic model for your practice.
Culture: What is the company’s culture like? Who will you be working with, and what are their values? If the firm operates under an existing brand, do you feel comfortable aligning with that brand's reputation and culture? Brand identity is a critical consideration if you want to ensure your values and mission align with those of the firm you're considering.
Trustworthiness: Investigate the leadership team and the firm's track record. What credentials do they bring to the table? What is their long-term vision for the company? Are they incentivized in a way that aligns with your interests, and do they have a history of success with advisors similar to you?
Ability to Execute: Look for clear evidence that the firm can deliver on its promises. Do they have a solid track record of supporting advisors through transitions? Can they demonstrate how they have helped other advisors grow their businesses?
Transition Support: One of the most critical aspects of evaluating a firm is understanding what support they will offer during the transition process. Will they help with client communication, technology integration, and training for your team? A smooth transition can make or break your future success with a new firm, so this support is crucial.
A Note on cash....
When evaluating potential new firms, you’ll likely encounter cash incentives or upfront bonuses designed to entice you to make the move. While these offers can be seen as recognition for your hard work and the value you've built in your business, it's important to scrutinize them closely. Remember: nobody hands out cash for free.
Often, these cash incentives come with performance clauses or are structured as forgivable loans, which can lock you into a contract for several years. These loans may also impose restrictions on your ability to exit the firm in the future without financial penalties. Here are a few reasons why firms offer large upfront cash payments:
Recouping the Investment: Firms offer cash when they believe they will recoup it, and more, over the lifetime of the advisor-client relationship. This is typically done through revenue share, product fees, or other forms of monetization.
Increased Enterprise Value: Firms may see the assets under management (AUM) that come with your business as worth more than the upfront cash payment, particularly if they’re aiming to boost their overall enterprise value.
The “Sticky” Effect: When cash is provided as a forgivable loan, it creates a “sticky” financial incentive. If you leave before the loan is forgiven, you could face significant repayment obligations. This effectively discourages advisors from departing too soon.
Growth and Performance Clauses: Many cash offers are tied to performance clauses, requiring you to grow your business to a certain level in order to fully realize the value of the upfront cash. By the time you've reached the required growth targets, the initial cash payout may seem relatively small compared to your post-growth revenue.
It's crucial to fully understand the financial implications of these offers. What do you need to do to qualify for the loan forgiveness? What are the repayment terms if you don’t meet performance targets? What is the tax impact? While a large upfront cash offer may seem enticing, it's important to weigh this offer against other strategic factors—like the firm's long-term stability, support, and alignment with your business goals.
Conclusion
The decision to explore options with other firms is a significant one, but it doesn't have to be a daunting or rushed process. By systematically evaluating your current situation, considering your goals, and conducting thorough due diligence, you can make an informed decision that will set your practice up for long-term success.
Remember, the key is to be proactive. Don’t wait until you're at a breaking point to start thinking about a transition. If you evaluate your options thoughtfully and plan strategically, you’ll be in a strong position to make the best move when the time comes.
