Maybe you have heard my rule for choosing posts’ subject matter: If I hear a question two times, I take notice. After hearing the same question three times, it’s a trend and I’ll gather my thoughts and write about it. Sometimes this leads to a post about a very narrow subject matter or for a niche audience, but still worthy of consideration. For instance, this post is aimed at the advisor who got his/her start in the insurance world: it is all about succession.  I’ve had this discussion four times over the last month, I guess it is a trend.

Here is the scenario, I talk to a seasoned advisor about their succession and/or continuity and they say:

  •  “There is a young advisor that I have been working with over the last few years, we seem to fit well together. I think he/she could be my succession plan.”
  • “We have shared many cases, and although I think he/she may do a good job, I’m not sure about the revenue split on those accounts and frankly, it seems that they are making a lot on MY business.”
  • “The young advisor has done a nice job of servicing my accounts and I value that. He/she is a wiz at the operations and technology, but they are really not bringing in a lot of new business.”
  • “If this person is my succession, I am struggling with the compensation model that fits, as our current model is straining our relationship.”

From the junior’s point of view

Unfortunately, almost all of these conversations over the last month have been with the seasoned advisor and not the successor. So it’s just a guess, but I bet the juniors are feeling the same pain – unmet expectations, lack of direction and no clear plan in place for the future.  Again, maybe this conversation is only relevant to the insurance broker dealer (BD), but I see many younger or less experienced people getting into the business only to partner up with a more seasoned advisor who can help with the more difficult cases, and even provide some experience and coaching, all done as revenue split.

Over the years, working with all types of advisors (Registered Independent Advisor, independent BD and regional wire house), I’ve always paid attention to advisor compensation.  To this day, I discuss compensation as a way to drive behavior of staff.  More importantly, I follow compensation to look at motivations and the thought process of businesses. I have always found unique to the advisory world that many traditional insurance-based firms used a process that we called split rep codes.  In other words, two reps may share revenue on case A 60/40 based on the value that each rep brought to the case but on case B might be 80/20. The junior rep was usually the one taking the smaller share of the revenue.

Moving away

The similar part of each of my recent conversions is the seasoned advisor struggling with the desire to step back, slow down and enjoy the fruits of their labor. They think this person can adequately service their day-to-day businesses but can’t get beyond the revenue discussion. To me, it should be a discussion about equity not revenue. If this person is really the heir apparent, why are we discussing revenue when we should be discussing ownership?  Shouldn’t the discussion be around a business instead of a practice?

The conversion needs to change from sharing revenue today to what the business looks like five to ten years from now so both the founder and successor are thinking about tomorrow instead of today. My guess is that the roles will be more clear and the income/equity more fair.

Discussion points

So how do you start those conversations?  First, for the founder, it is a change of mindset. Some ideas to help:

  • Build a career progression plan for the junior advisor. Set expectations. Use milestones to reach hurdles with tangible and measurable results. Use the ability to purchase equity in the business as a reward for reaching those milestones.
  • Think about a salary, not split revenue. Compensation is used to drive behavior.  Want the junior to manage old (and smaller) relationships as well as oversee the technology and operations – compensate them for it. If you must, maybe add incentive compensation for bringing in assets from referrals or capturing additional wallet share.
  • Meet and discuss often. Transparency and open dialogue are key to building a long-term partnership. Using the career progression is a great way to make sure you are both on the same page as you grow together.

Maybe I’m wrong, maybe this isn’t just about advisors with insurance-based BD backgrounds.  A career progression that is transparent and well-articulated often sets up the junior advisor with an actionable plan to follow. Changing your mindset from revenue to equity rewards someone for their hard work and makes your business more valuable.  Sounds like a win-win.

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