Sharing The Wealth

Financial Advisor Magazine

June 2009 issue

The key to growth and firm longevity is offering ownership opportunities to valuable employees.

By Roy Diliberto

Earlier this year, I was having a conversation with the only surviving partner of what was once a quality, high-service boutique accounting firm. The business had recently merged with a large national firm (a better description was that it had been taken over) and it wasn’t long before my firm noticed a difference in the service proposition ….

The partner acknowledged that things were far different now, and that while it was positive to have the financial backing of a large firm, it certainly changed the relationships his firm now had with its clients. I asked him the obvious question: “Why, if things were going so well, did you decide to merge?” He told me that they really had no choice. The firm had four partners and all except him were getting ready to retire. There was no way, he said, that there would have been enough money to pay the other three and maintain the business. …

Why, I asked, weren’t ownership opportunities offered to those young accountants the firm had hired over the years—many of whom had left? He didn’t really have an answer, but it seems obvious to me that the major reason was that the four partners simply did not want to dilute their ownership….

I decided early in my career that I wanted to build a firm that could function and grow without me. To do so meant investing in quality people and offering them opportunities to grow and prosper. Some planners with whom I have spoken have expressed concern that diluting their ownership by offering shares to other professionals may affect their own income. …

I am sure that my own income has increased in time because of my partners and our additional shareholders—and also because this means I have a market for my shares. Perhaps most important is the fact that our clients know there will be no disruption in the quality of the services they have come to expect. … Because we have made it possible for the valuable people at our firm to acquire ownership positions, those valuable people have not left. This has been the growth model for successful law and accounting firms for years.

Another benefit of offering ownership opportunities is that these shareholders can serve as your loyal and stable management team. …

As I look back on my career in financial planning and the development of our firm, I can unequivocally say that the best decision I made was to invite key associates to buy shares in the firm and become partners. … When we hire new associates, they join us with the full knowledge that they can eventually become shareholders. …

Our system for buying shares is simple. We value the company, internally, as a multiple of gross revenue. … We chose simplicity, but it is the concept—not the formula—that is important. New shareholders are initially offered an opportunity to buy five shares, which currently represents 4.35% of the firm. As they continue to progress, more shares are offered to them. If they would like to buy shares, the company can finance the purchase over five years at market interest rates. …At meetings, we each have one vote, and that has made for a very healthy relationship among us. There are other significant advantages: • We each have a market for the shares we own. We have exercised a stock redemption plan that will assure us a fair value for our shares in the event of death, disability or retirement. • We have learned from each other over the years because of the broadened perspective that comes from having multiple owners. • Good people do not leave to establish their own practices or join other firms offering better opportunities. • Key duties are shared by all owners and are not left for one or two people to accomplish. • The incentive to grow the firm is intense. • Our shared values have created a philosophy throughout the firm that we should do what is in the best interest of our clients. • We are able to recruit associates of quality. • I am confident that the firm I helped build will continue without me and will be my legacy to the profession.