Sept. 2014 CLS - FPA of Nebraska

TODD CLARKE, CLS CHIEF EXECUTIVE OFFICER
REINVENT YOUR PRACTICE:
ALTERNATIVES TO TRADITIONAL
SUCCESSION PLANNING
1570-CLS-8/6/2014
CLS INVESTMENTS, LLC – EARLY YEARS
CLS History
• Patrick Clarke
- Started in 1972: Stockbroker
- 1975 started a fee-based, financial
planning business
-
1992 changed business model
from a retail financial planner to
third party asset management firm
1570-CLS-8/6/2014
EARLY YEARS
Third Party Money Management Firm
• Started as an “overlay” money management firm
• Created AdvisorOne Funds in 1997
- ETF Pioneer
Clarke Lanzen Skalla Investment Firm, LLC
1570-CLS-8/6/2014
WANTED TO START ORION
1570-CLS-8/6/2014
WANTED TO START ORION
Sold CLS to Orbitex
1570-CLS-8/6/2014
ORBITEX YEARS
LESSONS LEARNED
1570-CLS-8/6/2014
CREATION OF NORTHSTAR
After Orbitex (as of January 2003):
• CLS assets approximately $750M
• Orion assets approximately $1B
• Gemini assets approximately $1B
1570-CLS-8/6/2014
NORTHSTAR TODAY
as of 5/31/2014
•
Assets under management and administration: $234 billion
•
Employees: 553
1570-CLS-8/6/2014
NORTHSTAR HISTORY
The Beginning of NorthStar
•
Entrepreneur
•
Client Relationships
•
Control
•
Flexibility
•
Ownership
1570-CLS-8/6/2014
NORTHSTAR HISTORY
Succession Planning
•
“I am retired. Retirement is doing what I want, when I want.”
•
Selling the Business
– Identity
– Mortality Attached
– Lack of Desire
•
1570-CLS-8/6/2014
Continuity Plan
SUCCESSION PLANNING CRISIS
SUCCESSION PLANNING
=
SELL
1570-CLS-8/6/2014
SUCCESSION PREPAREDNESS
Financial Advisor Stats
43% of financial advisors are either approaching or at retirement age*
(Average Age = 51)
1/3 of all advisors are between ages of 55 and 64*
71% of advisors have not defined or implemented a succession plan**
1570-CLS-8/6/2014
*Source: Cerulli Associates
**Source: Pershing Advisor Solutions and Moss Adams
SUCCESSION PLANNING CRISIS
Selling is a Difficult Proposition
•
Valuation Issues
•
Retirement Readiness
•
Desire
1570-CLS-8/6/2014
VALUATION ISSUES
Hypothetical Advisory Business Analysis
Annual Revenues
Advisor Salaries (40%)
Overhead (40%)
Free Cash Flow (20%)
Valuation (using multiple of 5)
Down Payment (40%)
Payout per Year
$400,000
$160,000
$160,000
$80,000
$400,000
$160,000
$48,000 for the next five years
= No Pay Day
This example is an illustration of a hypothetical advisory business. Actual valuations will vary.
1570-CLS-8/6/2014
RETIREMENT READINESS
Cobbler’s Children Syndrome
1570-CLS-8/6/2014
RETIREMENT AGE
At what age do you plan to
not planning to retire
*
retire ?
50-60
61-65
76+
66-70
*Source: CLS Market Research
1570-CLS-8/6/2014
RETIREMENT READINESS
Business will have to fetch
$750,000 to $1 million
1570-CLS-8/6/2014
DESIRE
“I really enjoy the business and working with my clients” – Joe Moyer
“I don’t want to retire. I still enjoy what I’m doing and I guess I’m afraid of the
inactivity that comes with retiring” – Rick Arellano
“I don’t plan on retiring anytime soon…I’m able to travel and take extended
trips without having to talk to the office at all” – Dave Huber
1570-CLS-8/6/2014
DESIRE
“…the broader issue is that many advisors simply do not want to retire,
because they enjoy what they do – especially if they can focus the practice
to get rid of the job duties that are the least desirable. In other words,
financial planning is a classic example of a profession that is not exactly a
physically intensive business, and as long as the mind is able and the body
allows for meetings with clients, planners can continue to work.”
– Industry observer, Michael Kitces
1570-CLS-8/6/2014
REINVENT YOUR PRACTICE
SUCCESSION PLANNING
=
REINVENT
1570-CLS-8/6/2014
REINVENT YOUR PRACTICE
Several Options
•
•
•
•
•
1570-CLS-8/6/2014
Buy-Sell Agreement
Partner with another Advisory Firm
Outsource
Junior Advisors
Combination
REINVENT YOUR PRACTICE
Do Something: Key Areas of Focus
•
Human Capital
•
Operational Management
•
Legal Agreements
1570-CLS-8/6/2014
REINVENT YOUR PRACTICE
Communicate Solution to Clients
•
Instills Confidence
•
Shows Long-Term Viability
•
Enforces your Fiduciary Responsibility to Clients
•
Allows you to Connect with the
Next Generation
1570-CLS-8/6/2014
SUCCESSION PLANNING SUCCESS
NorthStar Succession Planning Success
1570-CLS-8/6/2014
•
Continuity plan was in place
•
Results: client needs outsourced already
•
Partners and clients already had a
relationship with the whole team
•
Business continued to operate and grow,
uninterrupted
REINVENT YOUR PRACTICE
The One Constant is Change
“…You must constantly be thinking about your own succession
plan because things change…” – Rick Arellano
1570-CLS-8/6/2014
CONNECTING WITH CLS
CLS AdvisorIQ Series
CLSinvest.com/advisoriq
CLS Sales Team
CLSinvest.com/salesteam
888.455.4244
[email protected]
1570-CLS-8/6/2014
DISCLOSURES
The views expressed herein are exclusively those of CLS Investments, LLC, and are not meant as investment advice and are subject to
change. No part of this report may be reproduced in any manner without the express written permission of CLS Investments, LLC.
Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete
or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is
prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular
needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any
security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects
may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly,
investors may receive back less than originally invested. Past performance is not a guide to future performance. Investing in any security
involves certain non-diversifiable risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are
in addition to any specific, or diversifiable, risks associated with particular investment styles or strategies.
1570-CLS-8/6/2014