Merge Ahead: The Roadmap to Strategic Acquisitions, Succession Plans, and Internal Equity Transfers

Eric Brotman [00:00:00]:
Thank You. I’m excited today to talk about succession plan for us. As financial advisors. We do a fantastic job for our clients, but often ignore our own succession. So the question is, why are we talking about this now? Everybody in this room is at different stages of our careers. Some of you have five years experience, some of you have 45 years experience. But there’s a reason to talk about this now. Think about our clients.

Eric Brotman [00:00:32]:
How many of you do retirement planning? I would hope almost everyone in this room does retirement planning. Our clients spend their entire lives accumulating from the first paycheck. Hopefully they start putting money away and they’re accumulating wealth. And then there’s that moment where they have to become decumulators. They have to preserve their wealth and they don’t know how to do it. And we have to guide them through it. I would argue we’re exactly the same way. We grow our businesses and we grow them and we come to conferences like this and we travel all over the place and we add clients and we add staff and we add technology and we grow, grow, grow, grow, grow.

Eric Brotman [00:01:10]:
But so many people don’t have a plan to monetize our life’s work or to figure out kind of what we want to be when we grow up. You know, so many people say, I love what I do, I never want to retire. And that’s wonderful. I also don’t think retirement sounds like much fun. But we do need to figure out how we’re going to monetize our life’s work. Our client’s biggest asset is usually it’s usually their home or their 401k. If they own a business, it’s their business. Our biggest asset is the one where we punch the clock every day.

Eric Brotman [00:01:40]:
Or for some of you, I know who you are three days a week. But nonetheless, we spend all of that time growing something. And we have to figure out how to get that on our balance sheet, but actually in dependable wealth. So let’s talk a minute about growth. There’s a lot of ways to grow firms, but really it comes down to two. You can grow organically and you can grow inorganically. Organic growth is where you add clients, you get referrals, you grow because the market goes up, good things happen, and your aum improves and your revenue improves and you’ve grown the firm that way, and that’s organic. Inorganic growth is where you add from outside.

Eric Brotman [00:02:20]:
It’s where you add a senior level advisor with their own book of business and they join your team or it’s where you acquire another practice or you merge with another practice to grow and become a larger organization. And I’m here to tell you, having done both of these things for 32 years, that you cannot fix an organic growth problem with an inorganic growth event. It’s simply impossible. You can’t buy your way to profitability. You must have organic growth before you even contemplate any type of inorganic opportunity. Because if you’re not growing organically, the value of your practice is dwarfed by the practice that is growing organically. So do some of you do business valuations regularly or annually or what have you? If you use a firm like FP Transitions out in Oregon and you do a valuation on a regular basis, you will find that one of the key components is in fact your organic growth. There are lots of other metrics, of course, but that’s one of them.

Eric Brotman [00:03:21]:
Growing inorganically is an amazing add on. It’s a great way to add talent, to add technology, to add resources, maybe to add geography, but it’s not a good way to fix a problem of a firm not growing. So you must be growing first. So I’m going to ask you a couple of questions. I’m calling this a gut check because for some of us it’s going to feel like a punt punch in the gut. Number one. If you weren’t already in your business and you were in the outside world, would you buy your business today? Would you say, there’s an organization I want to acquire, I want to own, I want to run? That’s a good investment. For many of you, the answer is absolutely yes.

Eric Brotman [00:03:59]:
But I submit that for many of you it’s not. For many of you, you’re running a practice that has, that does not have value to an outside buyer either. Because all the goodwill is yours. If you’re the only advisor in the shop, if every client works with only you, if they don’t know your team, if they don’t know your full process, then you are the business they’re buying you. And that leaves you a little vulnerable. If you were starting your career, think back to when you finished college and you decided what you wanted to do. I don’t know how many of you found this industry first. I can tell you.

Eric Brotman [00:04:32]:
I was an English major. I studied late 18th century Romantic poetry in college. That’s a true story. And it doesn’t come in handy anymore. However. However, after a year working at a brokerage firm in the legal department, I made the very best decision of my life when I took the lsat, applied to law School, got into law school and did not go to law school. For any of you lawyers in the room, I’m sorry, but it was the best three years I didn’t spend and the best hundred grand I didn’t borrow. If you were starting your career as a young person, either coming out of school or as a career changer, would you want to be a junior advisor in your firm? Think about that.

Eric Brotman [00:05:09]:
What does it mean for your firm to offer a good job? It’s not just compensation. Compensation matters, benefits matter, but you can get those anywhere. What young people are looking for today is they’re looking for a career track. They’re looking for a path to something greater. Now, I admit they’re in a hurry. If you’ve hired anybody from Gen Z, they’re wondering why they don’t already have the corner office and their name on the door the day they get there. But if you were going to join a firm, would you join yours? Is there opportunity for you? And what would be asked of you? And then the third question is, if you look around your own org chart, Whether you have four people or you have 44 people, are there potential successors within your organization? Now, not only who could run it? You know, lots of us have business contingency plans. If I kiss the bus, so and so is going to take over my practice and make sure my wife’s okay and so forth.

Eric Brotman [00:06:05]:
There’s a lot of those contingency plans out there. That’s not the same as a succession plan. It’s better than nothing, but it’s not the same as a succession plan. Are there people in your organization, first and foremost, who could run it without you? Have you ever taken a month or two off a sabbatical and come back and realized they didn’t need you at all? In one way, that’s a very humbling experience. In another way, it’s a very important experience because it means the organization is more than you and it’ll run without you. Do you have people who can run it in your absence if it was an extended absence or if you retired tomorrow? Secondly, do the people in your organization who are capable of managing your organization and running your organization and have the appetite to borrow money to buy it from you? Because lots of them would love to inherit it. But that doesn’t put money in your pocket. What puts money in your pocket is being able to sell the organization that you’ve been building for your entire career.

Eric Brotman [00:07:01]:
So where do you find these people? We can talk a lot about hiring G2s and G3s and you know the next generation of advisors. But where do you find potential succession partners, merger partners, people who can join your firm to make it better inorganically? If you’re part of a broker dealer, if you’re part of a large ria, if you’re part of an insurance company, there are people within your ecosystem who are potentially looking for the same things you are. Maybe there are two people, three people, five people who can come together to create something pretty magical. If you were to work together, maybe it’s good geographically, maybe it’s good because you have different specialties. If one of you is a 401k producer and one of you is a life insurance producer, and one of you is an asset manager, maybe you actually have some really cool strategic alliance opportunities within your own ecosystem, within your broker dealer, within your insurance company, professional associations? You’re all here for a reason. Yes, we learn from each other. Yes, we network with each other. There are also opportunities in this room.

Eric Brotman [00:08:01]:
There are a lot of people in this room who are trying to figure out where they’re going to be in five years. And I don’t mean how many assets they’re going to manage. I mean what, what are they going to be doing? And I’m going to share with you a little bit about my succession plan as we go through because it’s in process right now and it’s working. And hopefully, hopefully a year from now, I’ll tell you how well it went. But there’s local industry networking. If you’re wherever you are, whether you’re in Albuquerque or Atlanta, there are local organizations where people are looking for this. Advisors. A third of financial advisors are within 10 years of retirement or not being able to work for some reason.

Eric Brotman [00:08:36]:
A third. Our industry is old. I only say that lovingly because I’m one of us. But our industry is old. And if we don’t have young talent coming up, we don’t have people to buy those organizations. It leaves us with one option. Well, two options. We can die at our desk or we can sell to a giant roll up and it can become XYZ Corporation instead of the one that we’ve worked our whole lives to build.

Eric Brotman [00:08:59]:
Online resources. I mentioned FP transitions. There’s also FinLink, used to be called SuccessionLink. You can go on there and find folks who are looking for merger opportunities. We’re buying and selling opportunities. It can be free or it can be inexpensive. But whatever you decide to do, if you’re looking for those opportunities, they exist. And then of course we heard From Matt Holleran yesterday about social media.

Eric Brotman [00:09:18]:
I know there’s a talk about social media happening around the room here today. LinkedIn is a magical resource. LinkedIn to me is Kevin Bacon. You’re one or two degrees of separation from everyone. And so if there’s someone you want to meet or know, or there’s someone you do know who can introduce you to the right people, by all means, use it. That’s a good place to find opportunities. I’m not going to ask for a show of hands of anybody here who’s bought a business. I will tell you, we just closed on our third acquisition.

Eric Brotman [00:09:44]:
And when you buy a business, it’s not the same as growing one. Growing one is one client at a time, it’s one employee at a time. It’s maybe one technology change at a time. But when you buy a business, it’s sometimes radical change. It’s the merger first of people and culture. People and culture matter more than anything. If you don’t have the people right, it doesn’t matter what your systems are, what your rates of return are, what your product line is. You have to have the right people and you have to not rock your culture.

Eric Brotman [00:10:13]:
People don’t love change, particularly change they can’t control. So it’s really important, not only for your employees, but even for your clients. If you’re going to do an acquisition of any kind, to explain to them what is changing, but also what is not changing. Don’t omit the things that aren’t changing because that makes people feel better instantly. Now, how about financials profitability? What is a decent profit margin in our business? You know, I would argue that the line under which we’re in trouble is 25%. Some would say 35 or 40. The private equity firms want firms at 40 and 45% profitability. That’s not easy to do.

Eric Brotman [00:10:48]:
That means you have to run a very lean, very tech heavy organization. If you have a lot of people, it’s going to be difficult to have that kind of profit margin, but it needs to be at least 25%. So if you’re looking to acquire a firm and that firm’s profit margin is lower than yours and nothing else changes, you will be actually diluting and hurting your own profit margin. On the other hand, if you can look at that and say, we can do this because we have better systems, we’ll be able to have greater capacity, we can get additional referrals, we can do additional business with these folks, then it’s okay. But you have to look at the P&L’s for each company individually as well as the combined organization. How about infrastructure? How about management? Anybody else here a lousy boss? I’m the worst boss ever. I manage no one. I can barely manage myself.

Eric Brotman [00:11:34]:
But we have people in our organization who are great at managing other people. I can be a mentor, I can be a coach. I can be a lot of things. I cannot be a boss. Do you have someone who can manage this organization and do employee reviews with people you’re largely just meeting? That’s a pretty major step. And then technology and workflows. I’m here to confess that we now use Salesforce Financial Cloud, which is amazing. It does everything but make breakfast in the morning.

Eric Brotman [00:12:00]:
But we came there directly from act. Does anyone remember act? We skipped from dinosaur to flying car overnight. Technology matters. The workflows matter. Having systems and processes matter. And when two organizations come together or when people join your organization, they have to buy into that same workflow system where you’re running silos. A lot of us grew up in the silo business. I know I did.

Eric Brotman [00:12:27]:
In the mid-90s. Everyone in the organization had their own book, their own clients, their own. We shared some space, we may share some staff, we paid certain overrides or whatever it was, but arguably we had our own practice within a larger scale. If you build a firm that’s a true ensemble, and there’s an amazing firm out in Seattle called the Ensemble Practice. Philip Palavev writes for a lot of the different trade magazines and he has something called the G2 Institute, which is a program for second generation, up and coming leaders within an organization in our industry. And they talk a lot about how these workflows are going to happen and how to integrate multiple organizations. So what’s a smart acquisition? Smart acquisition is one that first of all is going to be accretive to you. Secondly, it has to create capacity.

Eric Brotman [00:13:19]:
It’s not enough to buy revenue. You know, there are lots of stories about organizations. Let’s say you owned a hardware store and every time you sold a box of nails you lost 5 cents. You can’t improve your bottom line by selling more nails. At that level, you’re just going to dig your hole deeper. So it’s not just about revenue. Top line revenue is fun. It’s fun to talk about at cocktail parties.

Eric Brotman [00:13:42]:
It does not pay the bills. What pays the bills is profitability. What creates value for us as business owners is ebitda. It is profitability. It is not revenue. So if you’re buying an organization or you’re merging with an organization, it must create capacity. It must create the ability to handle more clients, the ability to manage more assets, some scale. Now, what are the client demographics that matter? How many of you have.

Eric Brotman [00:14:08]:
And again, I’m not going to ask for a show of hands. I don’t want to embarrass anybody. But how many of you have clients whose average age is 75 or 80 years old? Because we’ve been at this 35 years. Our clients have gotten older and so have we. And that is what it is. Firms are more valuable when clients are younger. And we heard yesterday some talk about multi generational planning. I don’t know that there’s anything more important than working with the children and the grandchildren, the heirs of clients.

Eric Brotman [00:14:34]:
I don’t think there’s anything more powerful in terms of growing organically than doing a family tree and some of the family meetings and things. I know Matt Holler talked about that yesterday. There’s nothing more powerful than getting the next generation. But I have bad news for some of the old folks in the room. Their kids, the kids and grandkids of the clients do not want to work with you. They want to work with somebody they’re going to relate to, somebody they can speak the same language, somebody they can grow with. I wouldn’t use my father’s doctor or his accountant or his lawyer. Why would I use his financial advisor? They can use the same firm.

Eric Brotman [00:15:07]:
There are things you can offer to them. But people don’t want a financial advisor 25 or 30 years older than them because when their big moments come in life, whether it’s an opportunity or a tragedy, they want to know that we’re here. So having those G2 and those G3 advisors makes a giant difference. We can have our clients. We do have our clients a lot of times pay for financial plans for their kids to then work with an advisor who’s closer to their age than I am. The kids love it, the parents love it. The kids build their own relationship. And I say kids, they could be 40.

Eric Brotman [00:15:38]:
But the children of the clients who we’ve worked with all these years spend an enormous amount of time building their own relationship with one that’s going to endure beyond my working years. We’re all in that same boat. So to drive long term value, you have to have younger clients. Now, younger clients usually come with less aum, which means by their very nature they’re less profitable. Some of us are with firms or have created organizations where there’s a minimum asset. Sorry if you don’t have $2 million, we won’t talk to you. There’s nothing wrong with that business model in the short run. In the long run, it does create a problem.

Eric Brotman [00:16:11]:
You’re walking away from all of that future growth and a lot of the people who are inheriting money. So finding a way to serve clients who have less than those minimums does make a difference to your long term success and the value of your stock. But they shouldn’t be working with you. If you’re driving value in the business of $1,000 an hour, you shouldn’t be working with somebody below that level. You should have a junior advisor, somebody who’s a CFP, who’s 26 years old, who’s working with this person because they can take good care of them and because their hourly rate is dramatically lower than yours. The law firms have figured this out. They’ve been running this model forever. The thing the law firms don’t have that we have is recurring revenue, which is the sweetest two words put together ever.

Eric Brotman [00:16:53]:
Okay, now what about cultural and philosophical alignment? If you’re looking at a firm or you’re looking at a partner or you’re looking at an advisor and the advisor comes in and says, yeah, what I’d really like to do is bring Bitcoin to all of our advisors that may or may not be aligned with the way you do business. And if it is, fine. If it’s not, that’s going to rock the boat. It’s going to change the culture. You need to know that all of your advisors, whether they are grown organically or they are brought in inorgan organically, are on the same Kool Aid. We are. They have to be singing from the same hymnal or it won’t work. That means the portfolio management has to be similar.

Eric Brotman [00:17:31]:
If you’re a big enough firm to have an investment committee and manage the assets internally, great. If you’re using a third party asset manager, that’s fine too. But the plans need to be the same. The three or four or seven advisors in your firm have to be delivering the same type of content, the same physical deliverables. Clients have to have a similar experience. Employees have to know that if they’re doing some planning prep for Sally or they’re doing some planning prep for Dan, that the planning prep is the same. So they’re not reinventing the wheel every time they do a client meeting. It’s totally inefficient.

Eric Brotman [00:18:04]:
And then how are clients and team members going to react to transitioning? That’s internal and it’s external. The external transition is I no longer am client facing. I’ve transitioned 100% of my clients to other advisors within our firm over the last 18 months. Some people would say that’s nuts. But at the end of the day, the way that we did it, every client is still with the firm. Every client has maintained profitability. Turns out they didn’t like me that much, and that’s okay. But we were very open with them about the way the firm was evolving.

Eric Brotman [00:18:39]:
You know, when I stepped down as CEO Jan. 1 and passed the reins to the next generation of leadership in our organization. I’m not retiring. I never want to retire. But what I am doing is I’m becoming a growth officer and I’m concentrating on M and A and I’m concentrating on growing the business inorganically because we now have a leadership team that can grow it organically. Now, how do employees react to that? Employees are going to say, whoa, there’s a new sheriff in town. They have to be a part of this conversation. I happen to think the more transparency we have with employees, the better.

Eric Brotman [00:19:09]:
That means transparency about financials, business plans, goals, objectives. It doesn’t mean sharing everyone’s salary on a PowerPoint. It does mean making sure that they have alignment with our vision. So for me, I wanted to do internal succession. So many people are out there looking to sell to a third party, a private equity firm. There’s lots of them and some of them are terrific. But when you sell to a private equity firm, if you are the majority owner of your firm, you own 50, 60, 80, 100% of your firm. And if you sell to a private equity firm, the winner is the big owner.

Eric Brotman [00:19:46]:
But the other people in your shop generally don’t win in that deal. In fact, if you have some employees who have bought stock from you, they own 2%, 5%, 8% of the company and you do a roll up, you get bought by a private equity outfit. Sometimes they can monetize that, that’s a good thing. But it’s not enough to retire them. It will change your life, but it won’t change the life of your junior folks. And they wind up becoming employees of a large organization. And that’s not what they signed up for, or they’d be with Merrill lynch in the first place. So internal succession was the path I wanted.

Eric Brotman [00:20:20]:
I would like our firm to exist for 100 years beyond my death. 100 years. And that means identifying people within the organization who can not only do the job, but are willing to borrow the money. And take the risk to do means that I have mentored, I have trained them, I have gone through, and we’ve created shareholder opportunities for them. We’ve got a path to equity even for our young people. They know get there. It’s incredibly important to know what that path is. Young people want not only career paths, but they want to know if they can have a seat on the bus and if any of us own 100% of our firm.

Eric Brotman [00:20:53]:
And we’ve got an army of employees. What we don’t have are business partners. What we don’t have is full alignment, even if we have great people. And the benefit to offering equity, first of all, it’s never given. It’s only sold. And it’s sold at fair market value. And you can help finance it, or you can use a bank, or there are lots of different ways to do it, but you can align with people who will then be part of the organization well beyond your working years. We have eight of those folks now.

Eric Brotman [00:21:19]:
It’s going to take at least 10 to fully buy me out. I know that it’s a lot of money. All of us are sitting on an enormous asset that most young people can’t write a check for. I get that. But we can do it gradually. I can sell this stock over the next 20 years while still being employed and engaged and doing things to help grow the organization and making a wonderful living and. And having a great life with my wife and daughter. It doesn’t necessarily mean that we’re disappearing.

Eric Brotman [00:21:45]:
None of us want to do that. What are the legal and financial expectations? All of our T’s are crossed and our I’s are dotted. I beg you not to do any of this on a cocktail napkin or on a handshake. Even if we trust each other, even if we adore each other, it’s important to make sure that those things are tied up. We do have legal agreements. We do have expectations for shareholders in terms of the work they’re doing. We do have all of the various steps, both financially and legally set up and then do this gradually. You don’t have to rock the boat by disappearing one day.

Eric Brotman [00:22:17]:
Obviously, tragedies happen. But if we plan for this, you know, I’ve known about this CEO transition for several years. Our leadership team has known, our employees have known. Our clients have just been notified gradually because it didn’t need to make big news until it was happening. You know, you don’t want to scare folks. Unfortunately, it has not scared folks. So let me ask you these questions. Are you ready to Grow.

Eric Brotman [00:22:44]:
And I mean really grow. I don’t mean the market goes up 8% and you add 15 households this year and maybe you hire another person. I mean really grow. Exponential growth, the kind that you see on a curve that makes you, makes you excited. Do you have bandwidth? Can you handle new clients? Do you want new clients? What is the right number? How many households can we serve? In the wire houses and some insurance companies, people serve 700, 800? A thousand clients? You can’t do financial planning for a thousand clients by yourself. What’s the number? Maybe it’s 75, maybe it’s a hundred. So how many advisors do you need for that clientele? And as you grow your clientele, how many advisors do you need to hire and have trained and have ready to go so that they’re not over maxed, they’re not over capacity and your clients get the good experience that they want? Do you have a path for your G2s? Do G2s know when they come in how they’re going to get to the next level? For our firm, it’s an apprenticeship program. We hire young people right out of school.

Eric Brotman [00:23:41]:
A lot of times we have them as interns before we hire them. We hire them out of school. They come in, they work in the investment operations department. They learn the back office, they learn the process, they learn what they need to learn and they get licensed. Then they begin their CFP education and they’re sitting in meetings and they’re doing meeting prep and they’re doing paraplanning and they’re learning how all of this works. And by the time they’ve been with us five years, they have been in client meetings, some of them for two solid years. They are now managing those relationships. And they didn’t have to do the Project 200 and call their friends and try and sell them something.

Eric Brotman [00:24:16]:
They just had to be great financial advisors and take incredible care of clients so we could continue to push that work down to a lower and lower pay scale. If you have G2s and they see that that’s a possibility, they will crush it for you. If they feel like they’re a cog in the wheel making you money, they will continue to shop for other opportunities. And why wouldn’t they? You would. Some of you did, some of us did. We left one firm for another because the grass was greener, because there was no path. The firm I worked for before I started my own had a path to equity. For me, that was absolutely impossible.

Eric Brotman [00:24:50]:
It was impossible. We didn’t do it on Purpose. It wasn’t malicious, it wasn’t that this was a bad guy. I mean, we’re dear friends to this day, but we built something that couldn’t work. The math didn’t work and for lots of reasons, but it wound up not coming to fruition. I had to start on my own. It was 22 years ago and it was terrifying. We called it the Jerry Maguire moment where we took the goldfish and said, anybody coming with me, we’re doing this right.

Eric Brotman [00:25:13]:
So the last question is, is your technology scalable? Are you hamstrung by your tech stack? Some of you are hamstrung a little bit because of either a parent company or a broker, dealer or insurance company or what have you. And they tell you what technology you have to use. But if you have open architecture for technology, having your technology fully integrated makes a difference, you know. Client advisory board. Our client advisory board’s been meeting since 2008, which was not the best time to start a client advisory board. In retrospect, we didn’t know, but that’s when we started. It was 08. And when we did, we asked lots of questions.

Eric Brotman [00:25:51]:
And the thing that bothered clients the most over the years was how many different log ons they had to have to work with all their different financials with us, because we were independent, we had lots of different things. The custodian had one, the broker dealer had one, the insurance companies had all these different things. How could we get them single sign on? And so we identified a tech solution for that. We use Orion, there’s several. And it means that clients can go to one place to see confirms and tax documents and statements, but also to share documents with us in the secure vault and also to see performance reporting. They need one login. They were so happy. And it changed what we were able to do too because it integrated all of our trading capacity.

Eric Brotman [00:26:28]:
We didn’t have to have multiple systems. Our employees love it. And yeah, we spent some money on a system, but it’s paid for itself in droves. So what, what do we, what mistakes do we make? There’s a lot of mistakes we make as advisors. I’ve made some myself, lots of them. And you know, I tell people I try not to make the same mistake twice, but I reserve the right to make all new mistakes and make them wildly. Number one, they think bigger is always better. Bigger is not always better.

Eric Brotman [00:26:55]:
More efficient may always be better, More profitable may always be better. But bigger is not always better. If you have too many clients to take good care of them. That creates liability issues, it creates fallibility, it creates even credibility issues. If you’re dropping the ball because you have too many clients, then bigger wasn’t better. Team dynamics and client loyalty matter. Having your team ready to run through a wall for you is a big deal. Having them so excited that they’re part of something bigger than them and that they’re not just punching a clock, waiting for 5:01 so they can be in the car and go home.

Eric Brotman [00:27:32]:
Having employees that are so excited to be at work and make a difference with each other, with clients, and then having clients who are loyal enough not only to refer. We talk about that ad nauseum at these conferences is how do we get more referrals? But. But how about just client retention? Another aspect of your business valuation is the duration of your average client. How long do clients stay with you? Because firms don’t want to buy firms that bring in a client and lose them three years later because they didn’t take good care of them. So if you have clients who’ve been around little, like your credit score, you know your credit score. One of the factors is how long has your oldest account been open? How long have you been at this? And how. What kind of client loyalty do you have? What is your retention rate? You know, I think a retention rate under 98% is not very good. Life happens.

Eric Brotman [00:28:19]:
Sometimes people die and leave money to charity. I get it. Sometimes people divorce and one party or the other wants to go one way or the other. In a firm that has multiple advisors, we’ve found it’s possible to keep both sides of a divorce, which is a wild thing. But you can by having each person get their own advisor. And that has worked. We’ve been able to retain some of those assets. Knowing the kids and grandkids, you can retain more assets when somebody dies, but there’ll be turnover for some reason.

Eric Brotman [00:28:46]:
Sometimes it’s geography. Zoom has changed that. I mean, Covid, as bad as Covid was for so many people and as much suffering as so many people went through with COVID the technology that came out of COVID has made all of us much more efficient. Our ability to hop on a meeting with somebody in New Mexico tomorrow is so different than it used to be. It used to be an airplane or a phone call. Phone calls aren’t as good as Zooms, where you can share screens and demonstrate things, and it feels much more human. When do you start planning for your exit? You know, our clients start planning for retirement when they’re 22 years old. Right? They’re 22 and they’re putting money away for when they’re 65, which all of them think will never happen.

Eric Brotman [00:29:28]:
And it does happen. Happens faster than we realize sometimes. But. But as that happens, when should they start planning? Well, the answer is immediately. And all of us should be doing this immediately. What is your end game? What’s your strategy? How are you going to exit this? Not because you’re excited to exit, not because you don’t want to be in it anymore. You can love it and do it to your 86. But at what point will there come a time where you want to be able to monetize this? If we owned stock, if we worked for IBM and 90% of our net worth was in IBM stock, and we came to any of you as financial advisors, what’s one of the first things you would tell us? Diversify.

Eric Brotman [00:30:09]:
You’ve got. Thank you. You’ve got too much concentration in your company stock. What’s the concentration that we all have in our company stock? I used to joke with clients that my portfolio looks a lot like yours, except I’m overweight. And Micro Cap and financial services. That’s what it was. We are all grossly overweighted in our own business, which means we are tied to our personal finances. And our company success is all tied to things, many of which we can’t control.

Eric Brotman [00:30:36]:
For anyone who remembers Y2K or remembers the recession in 08 or remembers even Covid, the blips that happen with COVID things can change very, very quickly. One of the reasons to work with a profit margin of 35 or 40% is we’ve seen markets drop 40% in six weeks. But before, and if that happens, your profit goes from 40 to zero. But at least it’s not negative. If you’re running a lean shop and you’re barely profitable and you’re taking out every penny that you’re, that you’re making and there’s a market turn or something happens to change our revenue, whether it’s legislative, regulatory, economic. When those things happen, we need to have a war chest, just like our clients do. We tell our clients to have a certain, certain cash set aside, especially if they’re close to retirement. How much cash do you need for the next three years or five years or 10 years or whatever makes you comfortable.

Eric Brotman [00:31:25]:
Why are we any different? Why shouldn’t we have dry powder for opportunities, but also to prepare for that next market correction whenever it occurs? And this process is not a transaction. I guess it is if it’s a private equity firm that writes you a big check and you never show up again, you’re done. Usually that’s not what happens. Usually it is a transformation of the organization. It’s the passing of a torch. It’s something to celebrate. You know, all of the talk that we have about with clients is to never retire because retirement’s torture. It’s awful.

Eric Brotman [00:32:00]:
It sounds bad. And they look at me funny and I say, well, if retirement is shuffleboard and daytime tv, I’ll pass. If it’s a life of a purpose and value and family and hobbies and interests and things, that’s wonderful. But for a lot of people, they don’t plan their retirement till they’re there. Are we doing the same thing? Are we waiting to see what’s going to happen? If we’re 50 years old right now and we’re thinking, oh, we got plenty of time, don’t we still have plenty of time at 55 or 60 or even 65 in our own mind? At what point do you have to say, okay, whatever my timeline is in this business, it is finite. Even if I don’t know when that’s going to be or what I want it to be, wouldn’t it be better to create it by design rather than by happenstance? Waiting until you’re sick and can’t do it anymore, or waiting until you’ve had a tragedy or an event? Why not plan to maximize this and stay involved long term? Have your cake and eat it too. We’re allowed to do that. We’re adult people.

Eric Brotman [00:33:06]:
We can do whatever we want with our cake. Have your cake and eat it, too. Sell some of the company, reinvest and diversify like you would for any other client. And then stay engaged where you’re still making a good living and you’re involved in whatever ways you want for as long as you want to. This doesn’t have to be a transaction where you disappear. That sounds lousy. What else would we do? This is our passion. This is what we love to do, or we wouldn’t be sitting here.

Eric Brotman [00:33:30]:
Okay, so the last thing I’m going to leave you with is some action items, things you can do immediately. And then I would love to entertain questions, preferably easy questions if you don’t mind, but any questions are fine. The question now is, what do we do with this? And we’ve all got our workbooks. We all. Yesterday we did in our peer group. Here are a couple things we can do, some things to implement. What are the things that everyone in this room can do now and you may not be able to do all of them immediately, but I think this is the checklist. Are you ready? Number one, decide what you want to be when you grow up.

Eric Brotman [00:34:04]:
I host a podcast called Don’t Retire, Graduate and wrote a book by that title. And I tell everybody on there. I ask every single guest what they want to be when they grow up. I think it’s an important question. We haven’t asked it since we were seven and we wanted to be astronauts or ballerinas or whatever we wanted to be. I, for the record, did not want to be a ballerina. But whatever it was, we stopped asking that when we were kids. We equate who we are with what we do.

Eric Brotman [00:34:31]:
If you ask a stranger on an airplane next to you, tell me about yourself, the first thing they’re going to say is, I’m an accountant. I’m an architect. But wait, aren’t you also a father and a husband and a hockey fan and a dog lover and a kayaker? Whatever it is, you’re lots of things. You’re not just what you do. You know, we talked about LinkedIn yesterday. People put on LinkedIn all this stuff, and it’s a resume and it’s a bio and it’s all this stuff. Have you ever seen a profile that just says, Joe Smith retired? Why not put deceased? Because if it says retired and that’s all it is, why would anybody go, there’s somebody I gotta get to know with, we need to have coffee. That’s somebody interesting.

Eric Brotman [00:35:12]:
I’ll bet Joe Smith, who is retired, is also a volunteer at the local food bank or coaches kids soccer teams or does something else. They’re not just retired. Don’t ever be just retired. What do you want to be when you grow up? Not what do you want to do? It’s not a bucket list. A bucket list isn’t enough. Bucket list is not enough. I actually interviewed somebody who, at 98 years old, created a bucket list with 100 things on them and did them all, including jumping out of an airplane, which was a crazy story. An amazing human.

Eric Brotman [00:35:46]:
Most of us aren’t going to do that at 98 or now, but decide what you want to be when you grow up. What are you passionate about? We tell our clients when they’re ready to retire, they need to have a plan for what that looks like. It’s not just you put in your two weeks notice and you’re fine financially and everything will work out. It’s create a path, something to move towards, not something to move away from. And we need to take our own advice. Assess your business for readiness. If you’re in a position where you’re able to do it sometime in 2026, take two or three weeks off or a month and tell your team, I’m not accessible. Unless somebody dies, I’m not accessible.

Eric Brotman [00:36:29]:
Run the company. If you’re uncomfortable doing that, it means one of two things. One, the business isn’t ready because you don’t have the right systems and people, or two, you have a micromanagement issue and feel like it’s all about you. I’ve been there, I’m guilty. It happened. Can you take a month off? It doesn’t. You don’t have to go to Bali. You could do a staycation, but just can the business run without you? Adroitly, It’s a good test.

Eric Brotman [00:36:57]:
It’s kind of like at our company. We did before COVID happened. We had done a disaster recovery test and we had everybody work from home for one day and then everybody came in the next day and we talked about the experience. What technology worked, what did you struggle with? What did you need? Who needed a monitor? Who needed a phone? When the pandemic hit, we were ready to work from home immediately, like nothing happened. And it was, it was luck. But we just said, let’s try a disaster recovery plan. If the office wasn’t here, we have an off site server. Could we all operate and the company could run and we could serve clients tomorrow if the building was flooded and we couldn’t go in it.

Eric Brotman [00:37:35]:
How ready is your company? Does your team have capacity? A capacity plan is a little like an org chart, but it’s an org chart that also includes the number of clients served, or the number of meetings being handled, or the number of hours likely to be spent servicing clients. Some of you meet with clients every quarter. For some it’s every six months. For some it’s once a year. There’s no cadence that right for everybody. Our businesses are different. But if you know that you’re meeting with clients twice a year and you know that you have 125 clients to serve, then that means you have 250 client meetings. If you’re working 50 weeks of the year, that means five meetings a week.

Eric Brotman [00:38:11]:
You can do two on Tuesday, two on Wednesday, one on Thursday, plan on Monday and Friday, or take a long weekend and everything works. But what if you suddenly had 100 more clients? You couldn’t do it by yourself, so your own growth would be like, like swamping your canoe. You can’t do it without Having that next advisor. So do you have capacity within your team? Do you have younger advisors or other advisors who can handle more volume? Because you’re the rainmakers in your organization. And when you make rain, you don’t necessarily have to be the only one holding the bucket. Assess your G2s, and I call it appetite. You know, the firm we just acquired in North Carolina has a G1 who’s excited about being done in two years and a G2 who wants to work for 330 years but wants nothing to do with borrowing money or owning stock. That’s okay, but they recognized a problem, which was this was a gentleman who could not just retire and be paid for it without selling to a third party or finding an organization that he’d be comfortable working with.

Eric Brotman [00:39:10]:
And we’re keeping the G2 on, and that person’s going to be a key component to our growth. He’s a terrific advisor. He just doesn’t want to borrow that kind of money. He’s a young dad and so forth and so on. He doesn’t want to do it. Fine. So what’s the appetite? If your practice is worth 5 million or 10 million or $35 million or whatever it is, young people are A, not going to be able to borrow that and B, not going to be comfortable being on the hook for something dramatically more than their mortgage. Which means you need other people in your organization who can.

Eric Brotman [00:39:42]:
It means potentially merging with other senior level people who are 10 or 15 years younger than you. Thank you. And lastly is to build a strategic growth plan and then decide which tactics to employ. You know, talk to your key person, talk to your office manager, operations manager, talk to your other advisors in your shop. If you’re running silo practices and one of you is going to take over for the other in the event of a tragedy, again, it’s better than nothing. But those clients don’t necessarily feel comfortable with that other person. Yet it’s so much better. If the clients have met this other advisor and been in meetings with them and emailed them and heard from them and introduced them to their kids, then it’s not just about us as the G1.

Eric Brotman [00:40:29]:
So I would love to take any questions that you all have. If you have a story or if you’ve been through this before, I would love to hear it. And I’m going to be here all day. I’m obviously doing this presentation again. So for those of you in the back who were out late, if you want to hear it again, that’s fine. And I’ll Be here all day. I would love to chat with any of you about how you’re doing this in your organization. But with that I say thank you and I welcome.

Eric Brotman [00:40:52]:
Questions, please. So the question was, how do you structure compensation essentially for G2s and salary specifically for G2s if they’re not bringing in business? Is that a fair. Okay. All of our advisors are salaried. All of us myself. We’re all salaried. And we use objective metrics to determine what those salaries are going to be. We happen to use the Moss Adams investment news compensation study.

Eric Brotman [00:41:19]:
There’s another one with ensemble practice. There are a bunch of them in the industry where we will stay top quartile in every position. We’re not going to lose anybody over money. But we’re also not having a whole lot of debate between folks. So the salaries are level incentive plans and the structure to either create new business or to grow within that company. The incentive plans are obviously very much unique to each person and how much business they’re developing and how they’re doing. So all of our G2s come in, they’re salaried people. They, when they start, they are investment operations.

Eric Brotman [00:41:49]:
They have that salary and then they have a salary as an associate. And then we call them hybrid advisors where they’re part associate, part lead advisor because their second chair for some people, some meetings and their first chair for other meetings. And there’s a path to become a full lead advisor and to start making the kind of money that lead advisors make. But at that point, they’re managing a full book of business. They’re all incented to do business development. It’s not that we don’t want them to, it’s that they’re not required to. Can I reach out to you 100% anytime? 100% anytime. Definitely.

Eric Brotman [00:42:21]:
Reach out to me. Yes, ma’. Am. You gotta yell.

Audience Member [00:42:23]:
Okay.

Eric Brotman [00:42:24]:
Oh, hi.

Audience Member [00:42:24]:
Hi. Good to see you again.

Eric Brotman [00:42:26]:
You too.

Audience Member [00:42:26]:
So my question is involving, first of all, I work with a multi line carrier and so my question involves the communication plan to the clients when they see a change in ownership. Can you talk about how you communicate to the clients? You may not in every situation, but we would have to do that.

Eric Brotman [00:42:47]:
Oh, absolutely. And we did. Oh no, we absolutely did. So great question. I think you all heard that because it was in the mic, the way we did this. Every client who I was meeting with personally and There were about 150 relationships I was managing personally for a very long time. Every one of those folks, when we sat down with the next One or two people who would be working with them. I was in the meeting.

Eric Brotman [00:43:07]:
I was delivering that message to them personally, one on one. Here’s what’s happening. This is what you can expect. I’m still going to be here. I’m not retiring. If there’s a. If there’s an emergency or we suddenly need institutional memory, I’m here. But you’re going to be taken great care of.

Eric Brotman [00:43:21]:
And all of them said that was fine. For the six or seven hundred clients in the firm who I don’t personally meet with, who meet with our other team members, we did that by letter. And, you know, we always send an annual letter. Every year we send one piece of mail a year from our office. Every November 1st, we send a letter and that’s it. People get used to it. And what that letter said, among other things, was that it’s been an honor and pleasure to serve as CEO, that we’re making some changes at the leadership level. I announced who the new CEO would be, who the new Chief Investment Officer would be, what was happening with our financial officer and what my role would be, and then did some, some, some stats about how the company was doing.

Eric Brotman [00:43:58]:
All the feedback we’ve gotten is positive. Our incoming CEO posted on LinkedIn that she was proud to be taking the reins and got a ton of external love for in lots of ways. In fact, she even had some people from a prior firm of hers reach out and become clients. So announcing that she was taking that role has already been a good business development tool. So apparently they really don’t like me and they really like her, and that’s okay. Does that help? I am out of time. So with that, I think there’s workshop debrief time. Please do see me or email me.

Eric Brotman [00:44:28]:
I think contact info is in the book anytime. And I thank you very much for being part of this. This.