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Practice Management

Transitioning out of a firm smoothly and successfully takes time and patience.

This Practice Management article is intended for financial advisors only (registered representatives of broker-dealers or associated persons of Registered Investment Advisors).

When Victoria Collins started her transition into retirement a half-dozen years ago, she wasn’t overly concerned about getting equity out of the firm she helped found in 1990. Indeed, she still owns a 5.6% stake in First Foundation, the wealth management company’s publicly-traded parent.

Her goal, rather, was to reset her career to spend more time on charitable work, while doing the right thing by her clients, she says.

“Some of these clients had been with me since 1990, when [with four partners] you could pack the whole company up in a car and go to lunch,” says Collins, now 72. “I felt we had to do this transition in a very sensitive and intelligent way.”

Even though the bulk of wealth managers at First Foundation Advisors work alone, Collins took on a partner, splitting her work and a portion of her compensation with Jennifer Cagle, one of the firm’s young rising stars. The transition took years, Collins says.

“In the beginning, it was more of a natural process,” adds Cagle, 44. “Victoria said something like, ‘I’m going to want to retire in five years,’ so I came in as her support.”

Shifting Clients
They started by simply having Cagle attend client meetings. Over time, Collins started redirecting client questions to Cagle to shift the balance of power.

And as Collins got closer to her targeted retirement date, they began to handicap how each individual client would feel about the transition and focus more carefully on clients who appeared resistant to the change.

“I would look at the client list, and I would put a green mark by the clients who were calling me all the time; a few yellows, where the relationship needed work—and then a few reds, where I wasn’t sure that we would ever click,” Cagle says. “We had a lot of time to nurture the relationships.”

By the time Collins officially retired, most clients already considered Cagle the main advisor on the engagement. 

When it came to client retention, the plan proved seamless, both advisors say. Collins handed Cagle a set of clients with $187 million in assets at the end of 2011; almost all of them remain with the firm today. Many also have recommended Cagle to friends and colleagues, which has allowed her to grow her practice without a lot of active rainmaking. Cagle now manages about $400 million of First Foundation’s $3.2 billion in assets under management.

Notably, the gradual transition applied to Collins and Cagle’s compensation as well.

Compensation is made up of several pieces at First Foundation, Cagle says. Everyone gets a base salary, plus one-time bonuses for bringing in new clients and annual pay based on the value of their assets under management.

Because Collins and Cagle were splitting the work, sometimes unevenly, they also split their contingent compensation. First Foundation’s managers left it to the two women to work out how to divide that money without a lot of second-guessing.

“We just kept talking about it and trying to figure out what was fair. It morphed about 100 million times,” Cagle says. “The company was okay with whatever worked for us, but they didn’t provide a lot of guidance.”

Complex Firm
In a traditional firm, figuring the value of equity—and how to distribute it when a partner retires—is a major and often challenging issue. At First Foundation, it was doubly so. That’s because while the firm had started as a traditional financial planning firm, by the time Collins wanted to retire, it was morphing into something far grander and more complicated.

Back in 2005, First Foundation’s partners realized they were increasingly competing with planning firms that could offer a more comprehensive suite of services, including bank accounts and investment management.

The firm contemplated selling out to a larger entity, but decided to grow in size and service instead.

Thus, in late 2007, First Foundation launched a federally insured bank to offer both bank accounts and trust services. The next year, it started offering foundation consulting, administration and family consulting services.

Due to its conservative lending standards, First Foundation’s bank managed to weather the 2008–09 financial crisis in relatively good shape; indeed, it launched an expansion plan that has more than doubled the firm’s assets under management and nearly quintupled the size of the bank. Whereas First Foundation bragged of 66 employees in 2009, by 2014, it had a staff of 194 and growing.

Because the firm was in the middle of this transition while Collins was making her departure plans, she says she was willing to delay any efforts to cash out.

“I knew what we were trying to build, and I knew that if we did it right, it would have real value,” Collins says. “But I also knew that it would take time. Fortunately, I had other assets that I could use after I retired, because liquidity requires patience.”

Delayed Payoff
Nearly three years after her official retirement date, First Foundation completed an initial public offering of stock. The company now trades on the NASDAQ under the ticker FFWM, and Collins can say her patience has paid off handsomely.

During the four-year period that ended December 2013, the company’s assets under management increased at a compounded annual growth rate exceeding 19%. Assets of both the bank and the trust company soared at an average annual rate exceeding 40%. And First Foundation’s revenues jumped at a blistering 39% average annual rate.

At a recent market price of $18.55, Collins’ stake is worth a cool $8 million. The retired advisor—who remains a member of First Foundation’s board of directors—says she will eventually lighten her stake in her former firm, but slowly and in keeping with the advice she’d give to anyone with a major position in a single company: that is, diversify.

“It would have been a different conversation if Victoria had said, ‘I need a payout immediately,’” says Tyler Resh, director of marketing and strategic planning at First Foundation. “She is very much a pioneer, and I think this transition reflected that.”

“As an industry, we shouldn’t lose sight of the fact that this business is about people,” Resh adds. “You have better opportunities when your motivations align.”

Meanwhile, Collins has launched a sideline business—one that wouldn’t pay the bills, but feeds her passions. It’s a personal documentary company that allows family patriarchs to leave more than just money to their heirs.

“It allowed me to take the piece that I liked the most about financial planning—talking to people about what their values are, what they want to pass on to the next generation, what they consider important,” she says. “We have a video team and do a documentary on this person’s life to share with their grandchildren and great-grandchildren, who may otherwise never know the person who created all this wealth.”

—Kathy Kristof

Kathy Kristof, a Financial Planning contributing writer in Los Angeles, contributes to Kiplinger’s and CBS’s MoneyWatch.



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