The future of Valerie March and Bryan Bennett’s practice arrived somewhat unexpectedly.

The founders of Bennett March were pondering an exit strategy from the business they’d run for 27 years, and faced the choice of either selling their book of business outright, or bringing in a younger partner and paving the way for a transition.

The company was their baby, and the idea of an outright sale didn’t appeal. They wanted to be sure that the clients would continue to be well served, and that meant finding new partners who not only were a match for their current operations, but also had a similar vision for the firm.

The answer came in the form of a client.

“I landed in their laps,” says Kathleen Peace. She was a support worker for people with mental health issues, and met Bennett and March while signing up for her group retirement savings plan.

Peace was no stranger to the world of finance, though. Prior to her career in social services, she’d worked on the CIBC foreign exchange desk in Toronto. When the bank bought Oppenheimer Funds in 1997, she was part of a transition team that went to New York City, working in fixed-income sales. Her next career stop was with CitiGroup, working in fixed-income research.

After returning to Toronto, Peace began a new career in social services. But March persuaded Peace to return to financial services, pointing out that she could help people just as much as an advisor.

At first, Peace received a salary as she studied for her CFP and eventually took on clients on a shared revenue basis. Once her commissions overtook her salary, that component was dropped. Over the ensuing five years, Peace and the senior partners kept their eyes open for junior partners who could support Peace and eventually become her own succession plan.

“I can’t manage the book by myself, nor do I want to,” says Peace.

After one false start, Peace noticed a potential partner in, of all places, the Toolbox section of Advisor’s Edge. Jason Pereira had written an article about using GMWB products in RIFs, and Peace decided to contact him. “I wanted some partners to work with, bounce ideas off of and have a dynamic relationship. We had a meeting with Jason and didn’t tell him what our agenda was,” she says.

But that “became clear within about 10 minutes,” says Pereira. His partner, James Collins, was also receptive to the overture.

Bennett, March and Peace were primarily interested in ensuring the prospective partners shared the same ethics and business principles. It was soon apparent that the two men did.

“The most important thing to us was that we partner with ethical people, who really cared about clients and the financial planning process,” says Collins, who co-founded Woodgate Financial Partners with Pereira in 2007. “Over many months of talking, we found that we were on the same page.”

Conveniently, Woodgate Financial Partners was already under the Investment Planning Counsel banner. Since Bennett March already worked with IPC, that removed the need for either party to change dealers.

The opportunity to continue working with clients was a key draw for both Pereira and Collins.

They had become disenchanted with the business model of the full-service brokerage, where they had each worked before opting for a more client-centric model. “The attraction of the independent side is that we have no revenue targets to meet,” says Collins. “We make what we make, but the client comes first and that is the sole premise of why we are on the independent side.”

The original transition – from the Bennett March founders to Peace – had created a template that she could follow to bring in the new partners. Just as Peace had shared revenue with her senior partners on the clients that she served, so too will Collins and Pereira share revenue with the firm as they take on existing Bennett March clients. With new partners, Peace also gained new expertise. Each partner has strong general planning knowledge and experience, but each also fills a niche in the practice. Peace, for example, is training to be the firm’s expert in matters of divorce. Pereira’s strength lies in corporate taxation and strategy for business-owner clients. That helps all partners when a client needs specialized attention.

The formula for splitting that revenue can be complicated, Peace says, since it takes into account the source of the client—are they longtime Bennett March clients? Were they referred by Bennett March or Woodgate clients? Who was serving the client? Who gave the referral?

The transaction is set to close in August 2011, and the continuing partners hope to have the valuation methodology nailed down by January of that year. At present, the final value of the firm has not yet been calculated—it’s a moving target as the value of the client book fluctuates with assets. Clients brought in by the acquirers are outside of the scope of such a valuation, as they already belong to the continuing partners.

“What’s being purchased is their book of business and everything else that comes with the company,” says Pereira. “I’m not really one for using multiples to value anything. If you’re trying to value a business based on how much they have in assets or revenue, that really doesn’t tell you anything about the profitability of the firm.”

“The multiples are easy,” he adds. “The model is a little more difficult because we have to figure out what it’s going to take to maintain the book of business, where are expenses going to go, then discounting that back.

“I think this is the most amiable deal I’ve ever been part of. We’re just trying to make it so that everyone is happy. Val and Bryan want to leave their company in good hands, and we want to continue with the company and make it as good as it can possibly be, so everyone is working together to make it work.”

The vendors have opted to self-finance the deal, which means the firm will continue to pay them a large portion of its revenues until the purchase price has been paid off. After the sale, March will be staying on to aid with the transition of the business and will continue to look after a smaller group of her clients.

“They could have just had someone buy it the next day for cash, but then God knows what happens to their clients,” says Pereira. “Do they trust the buyers, can they work with them, how much is going to be lost? With us, they know that it’s going to be run in a way that they’re happy and confident in.”

Taking over a firm that is almost 30 years old can be a bit daunting. The new owners are keen to truly make the practice their own. But how do you do that with a long-established entity?

“They made it easy for us – the ethical pillars are already in place,” Peace says. “What we really have to work on is taking it to the next level. Our focus going forward will really be on efficiency and technology.”

The partners also plan to increase the firm’s insurance revenues, noting that this side of the book was underserved. The founders, meanwhile, were already moving the entire firm toward a fee-for-service model, a business philosophy familiar to Collins, Peace and Pereira. The three newcomers plan to continue that shift.

“It really is a case of refining and polishing,” says Collins. “We’re very fortunate that it really is a very good business already.”

Once the final transfer of control takes place in August, 2011, Peace, Collins and Pereira will remain the joint owners.

New ownership will also mean a new name, but the three continuing partners have already decided against “Collins Peace Pereira,” or some similar variation. While there are no firm candidates for the next incarnation, it has been decided that the new name should be easily transferable to the next owners. Time will march on.

“This place is very much a work in progress right now,” says Pereira. “A big part of getting to know Kathleen was about vision; where we want to drive this business going forward. A lot of that has to do with the service offering we have, but also benchmarking that experience.”

That benchmarking process will include client satisfaction surveys, their own internal metrics for complaint handling, and client service levels.

Planning ahead for the business partnership should be second nature for financial planners. But, just as there are doctors who smoke, not all advisors think ahead. The new partners – Peace, Pereira and Collins – wanted to set up a framework for their future dealings.

Heading into the merger of Bennett March and Woodgate, they embarked on an extensive discovery process, based on a business planning guide, “The Partnership Charter,” by David Gage.

The process examined goals, views and beliefs before people formally agree to become partners. If the process itself generates a great deal of conflict, it’s a strong hint that the partnership could mean trouble.

“The charter process doesn’t so much help you work out conflict as it helps you find it,” says Pereira. “It’s like premarital counselling.” He says the process helped settle potential conflicts long before they had a chance to arise. The primary conflict they anticipated was over the question of who would ultimately control the merged firm.

All three partners agreed that control of the business should be shared equally, but because Pereira and Collins were already business partners, there was the potential for control conflicts with Peace. They agreed that some issues – such as relocation of the office, or taking on new partners – were so important they would require consensus, while other issues would require a simple majority. And, if they couldn’t reach a resolution after a predetermined period, they would write up the opposing points of view and submit them to three trusted outside advisors, such as lawyers or accountants. If these impartial decisions do not resolve the matter, the partners have agreed to take the issue to a professional mediator. Any lingering conflict indicates a problem with the partnership itself.

In a situation where all three have a differing opinion – for example, in the choice of a preferred insurance supplier – one partner would be chosen to have the power of closure, making the decision for the partnership. There is one major condition: he or she cannot choose the option they had originally put forward.

“They get to be the decision-maker, but it’s not the decision they wanted in the first place,” says Pereira. “That’s the compromise. If one person is going to have that authority, they can’t use it to just impose their will on the other two.”

The charter process also allowed the partners to address issues of their own succession: what if one of them died, or became disabled, or divorced? The charter provides a go-to document that helps to guide the partners through stressful times. It’s also very much a living document, subject to annual review.

“When we started talking to a lawyer about putting together the partnership agreement, he was pretty impressed that we had already addressed many of the issues they had to cover in that agreement,” Pereira says. But that approach just made sense to the trio – imagine presenting a “post-nuptial” agreement five years into a marriage.

“You’re not going to sit there and have the lawyer coach you through every scenario, then you go away and think about it,” he says. “We’ve already agreed about all of this, and it was at a time when we were just talking about merging – we weren’t actually committed to it. At that point, the cost of failure was next to nothing.”

If they were having the same discussions today, there would be far more emotion involved, as all three are fully invested in the partnership.

They also had the blessing of founders March and Bennett. “We shared that document with Bryan and Val the entire time, and they were very impressed, happy and confident,” says Pereira. “They have already bought into our vision for the future.”

Client retention can also be somewhat easier with such a phased-in succession. If the retiring advisors had simply sold their book off, the buyer might have ended up with clients who felt abandoned, or worse, commoditized.

Since Peace has been with the firm for five years already, she has an established relationship with all of those clients. And the fact that she hand-picked Collins and Pereira, and will be staying on at the firm for many years to come, has made retention relatively easy.

“When someone new shows up and they have the blessing of the old advisor, who says ‘this is someone you can trust,’ they will at least give you the opportunity,” says Pereira. “After that, it’s up to us to succeed or fail, and up to now, knock on wood, we’ve succeeded.”

For a firm that has been in operation since 1983, long-term clients may be considerably older than the three advisors who are taking over the business. When March was first introducing Peace to clients, she would point out that this young advisor would one day be looking after her personal account as well.

“The relationship I’ve developed with Bryan and Valerie is almost familial,” says Peace. “They’re basically my second set of parents. Not everyone gets along with their parents all the time, but we always reconcile, we love each other and we make it work.”

  • Steven Lamb is the Group News Director for Rogers Financial Publishing.