Younger planners blazing own way

Many young advisers have taken it upon themselves to pave their own path into the financial advice industry. Within the Financial Planning Association’s NexGen young adviser group, three advisers have taken different paths to build their own niche within the industry. Greg V. Fernandez, president and managing member of Nations Capital Wealth Management LLC in McLean, Va., teamed up with David Grau Sr., president of Business Transitions LLC, and became, at age 27, the first adviser to be part of a partial-book purchase. Business Transitions is a Portland, Ore.-based financial sales and consulting company that operates FP Transitions, a web-based match-making service that lists buyers and sellers of advisory businesses. Mr. Fernandez, now 30, had done his homework on the company earlier and approached the owner of a Washington-area firm before signing on to take over the $5.5 million of 40 clients, its business structure and processes. The average adviser sells their firm in their late 50s, but according to Mr. Grau, the average buyer is in their early 40s. “The difference in Greg’s case [where the adviser was in his late 60s] is that the seller is older and the buyer is younger,” he said. “Advisers don’t sell out their cash flow to an untested seller. Greg was given an opportunity that doesn’t typically come, and most young advisers make acquisitions through succession planning, and they become a minority shareholder or an option holder.”
Mr. Fernandez previously had served as a financial planner at several banks and at a financial planning firm, starting at age 21, and was unhappy selling products and producing revenue and wanted the opportunity to focus on giving advice. After attending the University of Maryland in College Park, he began the process to become a certified financial planner at age 24 and decided that it was the career path he wanted to take. “I would rather work under a structure where production was not just based on producing revenue,” Mr. Fernandez said. “All I wanted to be was an adviser, and I didn’t want to focus on building revenue for a company at the expense of the client.” Aided by a strong financial market, Mr. Fernandez’s portfolio has grown to $20 million over three years, and he now serves 54 clients. “I wanted to go out on my own, because I wanted to operate like a fiduciary, and I felt that my growth would be a lot faster if I bought part of a firm,” he said. “That led me to the point where I am at today.” Mr. Fernandez said there will be a need over the next 10 years for advisers to focus on succession planning and on how to monetize their business and pass it on. He added that a partial-book deal is a good way to sell a firm, as it helps an adviser increase average assets under management per client, thus growing the value of the business. As for Mr. Grau, FP Transitions has orchestrated an increasing number of transactions since 2000 and has done more than 1,000 deals per year at broker-dealer firms over the past three years. Starting as an Intern For Eric Hehman, 32, of Austin (Texas) Asset Management Co., what was just a summer internship for the senior at Texas Tech University in Lubbock turned into a 10% stake in a small financial advisory firm.
Then 22 years old, he had to balance financing the purchase of a piece of the firm with a marriage, a college graduation and the purchase of a new home. As his ownership stake has increased, Mr. Hehman’s title has changed, too. He moved up to chief financial officer, managing partner and chief operating officer and was promoted to chief executive this year. That ownership stake increased to 20% when Mr. Hehman became a CFP in 2000 and to 30% when he bought out a larger piece of the company in 2003; he now has a 40% stake. Over that 10-year span, the firm has grown from three to 15 employees and has increased assets from $25 million to $375 million. “Succession has been critical here, and it charted the course for the business to be intentional about its growth,” Mr. Hehman said. “Many people miss the opportunity of buying into a good succession plan.” “Building a succession plan was an important move from an ownership standpoint, and it was a step that we would take formally and translate to the newest staff person. It has been a smooth transition,” Mr. Hehman added. Since Mr. Hehman has taken over, Greg Van Wyk, another member of the NexGen group, has purchased a 10% stake in the firm — at the end of 2006. Mr. Hehman hopes to build its assets under management to $800 million within the next five years. Going it alone Paul M. Bennett, 26, a branch manager at the Bloomington, Minn., office of Raymond James Financial Services Inc. of St. Petersburg, Fla., also has decided to fly solo.
Mr. Bennett, then a recent graduate of Minnesota State University in Mankato, bought two books from other Raymond James advisers in the Minneapolis area, with $30,000 and $2 million in assets on top of the $4 million that he managed at age 26. As time went on, he pursued and purchased a $6 million book of assets last year from a 75-year-old adviser who is retiring, and he eventually built them up into a portfolio worth $20 million. Mr. Bennett now is looking to take on a $35 million firm whose owner will turn 62 in January, and he expects to complete the acquisition in the summer of 2009. “Every deal is different, and you have to watch out who you are purchasing it from,” he said. “The book should really resemble what the adviser looks like, and advisers need to do some investigating to see what the book looks like.” Mr. Grau of Business Transitions suggests that not all young financial advisers will be able to purchase part or all of a firm as easily as Mr. Fernandez or Mr. Bennett and suggests such advisers seek out a place in a succession plan, rather than purchase part of a firm. “Most advisers look for practices up for sale and try to make an acquisition,” he said. “For young advisers, it is statistically not going to happen, and they need to take sole practitioners without a plan, and be their backup plan, and they shouldn’t wait till practices go up for sale.”