When Bob Swift was still the sole owner of TCI Wealth Advisors, he had an epiphany about what he wanted his firm to become — a lasting practice that would someday help his clients’ grandchildren with the same quality advice he was already providing to current clients. That suggested, he says now, that selling his practice wasn’t an option. What the planner, then 50, really needed was a viable succession plan that would entice young planners to join the firm, train with its lead planners — and, over time, take over as the older planners scaled back and retired.
“The succession plan was easy once we decided what we wanted to be,” he says. “If you want to be a 100-year firm, you had better attract the best young planners out there. And that’s not going to happen if you are holding on to your shares until the last minute.”
That was 10 years ago. Swift, now 60, owns just 20% of the firm he founded in 1990. TCI boasts 14 equity partners, with two on deck, and he expects 20 planners to share equity in his firm within three years. He has promised to sell 100% of his remaining stake before he reaches age 65 to keep an adequate number of shares in the pipeline for new partners to purchase.
Swift doesn’t intend to retire when he is no longer an owner — and wants to encourage other older planners to keep active in the practice too. So TCI’s succession plan isn’t standard formula. Indeed, he and the two senior planners who structured it decided to set an unconventional course from the get-go.
“Our starting point was to say that whatever has traditionally been done in our industry is what we don’t want to do,” he said. “We wanted to consider a new way.”
EARLY PARTNERSHIPS
At the heart of TCI’s formula is an overriding goal to attract and nurture both young planners and young professional clients.
On the planner side, the firm attempts to attract and retain talented young people by inviting them into the partnership far earlier than a traditional firm would. Indeed, of the two planners invited to be partners in 2014, one has been with the firm for just a year, the other for two.
But because TCI doesn’t want older planners to bail out when they sell their equity, compensation is separated from ownership, Swift says. Every planner earns an annual salary and a bonus, he explains; the only extras for equity partners are quarterly dividends derived from the firm’s excess profits, as well as the ability to monetize their interests in the company by selling shares.
Partners can sell those shares at any time, Swift notes. To sell shares, the selling partner simply needs to notify the group of the number of shares for sale. Interested partners then apply to buy the shares at the price the firm set at its annual meeting.
Partners with the smallest stake in the firm — less than 5% — get first dibs. After that, shares are offered to those with 5% to 10% interests. Once that market is exhausted, those with larger stakes could apply — at least in theory. As it happens, the shares have always been snapped up by the younger partners with little equity, Swift says.
Selling shares also doesn’t mean you’re headed to retirement, he adds. The most recent sale was by a partner wanting to buy a new home. Three young partners applied to buy; they each bought one-third of the shares available. “So far, it has worked really well,” says Swift.
VALUATION STRATEGY
To value the shares, TCI partners start by looking at all the traditional yardsticks — EBITDA, multiples of annual revenue, discounts and premiums based on the age and longevity of the firm’s clientele, etc. But then the equity partners discuss the number, attempting to determine a price where they would be willing to buy and sell.
Typically, Swift says, within an hour they have a share price that goes into effect on Jan. 1 for all sales conducted in that year.
“If anyone thinks the number is crazy, we have the ability to bring in up to three appraisers,” he says. But that’s not yet happened. “If somebody were to die or be disabled this year, we want to make sure that their family is being fairly compensated. When you think in those terms, and realize that it could be any one of us, you arrive at the right number.”
The firm is contemplating one change to this valuation process, which is to revisit the price midyear to allow those selling toward the end of the year to get an updated value.
STRONG GROWTH
In the 10 years the system has been in place, TCI’s share value has grown by an average of 20% to 25% per year, Swift says. He attributes the enviable growth rate partly to the fact that everyone is pulling for the firm’s success. “The more people who are participating in the success of your firm, the better off you are,” he says.
TCI now has seven offices, mostly in the Southwest, with more than 1,400 clients and $1.65 billion in assets under management.
Every client is serviced by five planners, Swift says. There’s a lead advisor, lead associate and a backup advisor and associate, who are familiar enough with the client’s goals and situation to answer questions and provide direction if the lead team is temporarily unavailable. The final participant in each client’s team is a paraplanner — often a young person who is in the process of earning planning credentials, who does research for several planning teams.
YOUNGER CLIENTS
Meanwhile, to attract young clients, the fee-only firm has started Aspire, a program designed for young professionals who can’t meet the firm’s $400,000 investment minimum.
“We all know that a good financial plan can have an incredible impact on a 30-year-old,” says Swift. “I’ve never felt comfortable with the idea of telling that young person, ‘I’d like to help you, but come back when you’ve got $1 million to invest.’ We want them to have access to us, not the insurance guy or the salespeople.”
This program ignores how much a client currently has in savings and offers access to TCI’s planners with no set minimum fee, as long as the client meets three conditions. He or she must be willing to save — or pay down debt — at a rate exceeding $24,000 a year. At least $15,000 of this amount must be set aside for retirement; and the client’s savings rate must be on track to make the client a millionaire by age 65.
Cost is a slightly elevated 1.25% of assets each year, which will drop to 1% of assets after the client amasses at least $400,000. And these clients without deep pockets are never relegated to a “robo advisor,” Swift says, arguing that everybody should get the personalized planning that the wealth management industry provides well-heeled clients.
“We not only want to do well for our clients and our staff, we want to change the industry a little,” says Swift. “Many [planning firms] are interested in what we are doing here, because there’s clearly a demand for it.”
Kathy Kristof, a Financial Planning contributing writer in Los Angeles, contributes to Kiplinger’s and CBS MoneyWatch. Follow her on Twitter at
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