Financial advisors face twin business challenges that are difficult to accomplish at the same time: succession planning and generational retention of clients.
On the one hand, the veteran advisor aims to retire comfortably after building a professional legacy: a successful business where longtime clients can rely on the same level of service after the advisor’s departure. On the other, the successor is trying to find a feasible and rewarding career path by winning over those client households as an advisor with much less experience in the industry.
In the middle, the clients seek to address the complex issues involved with passing down wealth, Lisa A.K. Kirchenbauer, the president and founding partner of Arlington, Virginia-based Omega Wealth Management, and Jared Jones, a partner and senior advisor with the registered investment advisory firm, said in a presentation at the Financial Planning Association Retreat in Oak Brook, Illinois, last month. The talk offered a glimpse into one firm’s answers to the many questions involved with RIAs’ efforts to retain spouses and children as clients at the same time that they recruit successors and advance their professional careers.
“What we’re going to talk about today is really the journey that we have taken at our firm, the hard lessons learned along the way,” said Kirchenbauer, a 40-year veteran planner who has led the practice for roughly the past 25. “If you aren’t building a multigenerational team to support the multigenerational families, you’re probably not going to be successful. And so that’s really the genesis of why we’re here today.”
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The simultaneous trends shaping the future
Conversations around the initial waves of the estimated $124 trillion flowing to clients’ spouses and children by 2048 in the so-called great wealth transfer are already happening, Jones said. Many younger generations of planners are trying to find their career paths by connecting with older clients through a handoff from their more experienced colleagues.
“Maybe it could be a story in my own head, but I’ve thought there’s a perception about, when advisors like Lisa are passing on clients to advisors like me, it’s just an easy process,” said Jones, who’s been with the firm 10 years and a partner since 2023. “It was really challenging, actually. Personally, I knew these clients did not come to Omega to work with me, and I had very large shoes to fill, so it required a lot of me to step up and build trust and relationships with somebody who could be 20, 30, 40 years older than me. So that was a difficult process.”
For some of those clients, the technical aspects of estate planning for a wealthy family come with some more qualitative concerns among the succeeding generations, according to Jones and Kirchenbauer. The firm refers to them as the “rising generation” rather than using terms like “next generation or NextGen,” in response to research showing those words can breed some distrust among younger people out of the suggestion that they are naive or don’t already work for a living. And Omega engages the families in discussions about the creation of the wealth itself, as a means of figuring out how that will relate to the family’s legacy and future plans.
“It’s important to really tell the story of the family and where the wealth came from, because sometimes where the wealth came from is, as far as the rising generation is concerned, a very dirty place,” Kirchenbauer said. “How it was made, how it was acquired, is not something that they want anything to do with. Now, sometimes it’s an assumption that they’ve made. There really was never a conversation. And, of course, we see a lot of certain kinds of stocks. I’m sure you’ve all seen the stocks with all the embedded gains. They’re all the same players all the time. And, for some of our rising-generation clients, they really have a hard time with that, and so it’s something to be sensitive to: How do we navigate through that? Maybe they inherit the stock. We figure out how we can sell it, we put it into another place. But what you don’t want the rising generation or the inheritors to do, and this is what can happen, is that they feel the money is really dirty.”
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The fight for top talent
Those examinations of the client families’ dynamics have been taking shape while Kirchenbauer has pursued her succession plan over the past 12 or 13 years. The firm sustained some turnover to her team, as some staff members she thought were potential partners didn’t work out. For their parts, the incoming generation of professionals may struggle to find their footing in the field if their firm doesn’t plan a career track for them to take over some day, she said.
“This is a real crisis, I think, in our profession and industry,” Kirchenbauer said. “There are a lot of folks Jared’s age, maybe a little bit older, who came into a firm like ours, were promised a succession plan, and us G1 founders just can’t get our act together. We don’t have a life outside of the business, so we think we’re never going to retire, and we are not creating an opportunity for the future.”
For that reason, many of Jones’ peers are “still searching for the right home” 10 or 15 years into their careers, he noted, despite the fact that the profession remains in a fight for top advisor talent. Knowing he could get partnership status at Omega was a factor in Jones’ decision to stay.
“One of the things that kept me around as long as I’ve been at Omega, is always being able to see there was a path to that,” Jones said. “Very early on, Lisa started talking about that as a real possibility. I believed her, and it worked out.”
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Keeping it in the family
That process demands a thoughtful approach and some tough negotiations, especially for an internal succession deal as opposed to working with an external investor such as a private equity-backed buyer. The first tranche of the RIA’s succession transaction came in the form of a seller’s note in a deal financed by Kirchenbauer as the firm’s outgoing owner. In those kinds of transactions, the owners may “get a little less money, but it’s on your own terms, as opposed to somebody else’s terms,” she said.
“Probably the hardest part is the first tranche, because we’re on different sides of the table,” Kirchenbauer said. “After that, we’re all owners negotiating with each other as owners, but the first time I’m negotiating, I’m the owner negotiating with my employees, and we aren’t necessarily aligned, as far as what we’re going to do. So having that intentional succession plan — like we all know, if we read our books, and we go to sessions on this — you’re supposed to be starting five to 10 years before you think you’re actually going to walk out. And so many of my peers have honestly not done a good job of that. They waited till there’s a health crisis, a family crisis. They’re just completely over it, and now they want out. And, while the woo of private equity sounds great, there are a lot of strings attached to it. There are hoops that may be hard to jump through.”
Kirchenbauer provided Jones with a discount on the RIA’s valuation in the seller’s note, though she said that there are some “different schools of thinking” about whether outgoing owners should do so. The next tranche, which “hopefully will be sometime next year,” will ideally be bank-financed rather than another seller’s note, Kirchenbauer said.
So what’s the right discount level discount for internal deals? Based on “doing some extensive research into that question,” Jones said a discount between 20% to 30% off the full value represents a “reasonable” markdown when buying a noncontrolling interest. But that constitutes only one of many aspects of the transitions at a multigenerational firm.
“What I learned going through the process was, there are a lot of different variables in that process that are up for negotiation,” he said. “You have to decide which variables are important to you, and which variables you’re OK moving around on.”
