Janet Briaud is 62 and has been a planner for nearly 30 years, so it's hardly surprising that she'd been thinking about succession planning.
"About 10 years ago, I started to wonder what would happen to my clients if something happened to me," she says. "I started asking questions and having valuations done on my firm." She found that putting her thoughts into action was more difficult than expected.
When Briaud started exploring the idea, her daughter, Natalie Pine, was a financial whiz working at Goldman Sachs in London. Briaud would send her the firm's market valuations for her thoughts. Later, Pine and her husband, Roger, returned to the U.S. to start their own family - they also both wound up working for Briaud Financial Advisors, headquartered in College Station, Texas.
Knowing about Briaud's succession planning concerns, Pine approached her mom with an offer to buy the firm.
Briaud's answer was an emphatic no. Not only did she think the amount was too low, but the succession arrangement seemed too rapid. She'd imagined giving up control in small increments over a long period of time. "It was really a bit of a shock," she says. "It was emotional and there were some hurt feelings," she says.
STUNG BY A LOSS
A former physical education teacher, Briaud launched her planning firm in 1986. She and her husband had moved to College Station when he became a professor at Texas A&M; she found herself investigating investments after a broker lost half of their life savings by investing in a high-risk technology fund that paid the broker an 8.5% upfront fee. "We had hardly any money," she says. "I learned a tremendous lesson from that."
The experience sent her to the library to research investing options. The more she learned, the more engaged she became. She finally decided to take certified financial planner courses and launch her own planning firm, specializing in the market she knew best - teachers with 403(b) retirement plans.
But making Briaud Financial Advisors, which now has 300 clients and $480 million in assets under management, into a successful business was neither quick nor easy. Briaud wrote weekly articles for local newspapers and hosted seemingly endless investment presentations and workshops to troll for clients, she says. For years, her fee-only planning firm barely broke even.
Her big break came in 1990 when a still-nascent NAPFA asked her to speak about the economics of running a fee-only firm focused on middle-income clients. "I wasn't making any money at the time, but my husband is an engineer and he extrapolated out a very rosy scenario - including showing when he would retire because of my income," she laughs.
The planners loved her tongue-in-cheek presentation, and she was soon asked to join the board. She became NAPFA's president in 1993, which brought her national attention. She landed on Worth magazine's list of top financial planners and her business took off.
Now her firm is well-established and her clients are no longer middle-income. Although she primarily charges based on a percentage of AUM, Briaud has a minimum annual fee of $10,000; most of her clients have $2 million to $20 million invested. She still focuses on the education market, but works mainly with college professors, who are solid savers with steady six-figure incomes.
Until her daughter joined the firm, Briaud was the business's CEO, rainmaker and primary client contact. In truth, she liked the idea of slowly shifting some ownership to her offspring. But it took six months of persuading before she was willing to sell even a half interest. "The notion in our business is that if somebody works for you, you'd allow them to buy up to, maybe, 5% of the business each year," she says. "I had it in my mind that we would do this little bit by little bit."
But, with both spouses engaged in the business, the Pines thought that the 5% solution was far too slow and left them with too little control over their careers. "If you have a good working relationship, it doesn't matter who owns the majority of the business," Roger Pine says. "But it was important to us to feel that we had an equal voice."
Even in the best of circumstances, trying to put a value on someone's life work can be tricky and uncomfortable for both sides. The seller's emotional attachment may make her feel the business is worth far more than the buyer, who ultimately must earn a profit after paying the cost of the purchase. Negotiating a price within the complex dynamics of a family, where you hope to be able to have dinners and holidays together, can make negotiations even tougher.
To diffuse the emotional electricity, Briaud and the Pines started to work out a mathematical formula to calculate the value of the business. In the process, they came up with a detailed spreadsheet that examined each client relationship and all of the firm's expenses. Because of Briaud's fee structure, they also had to estimate growth for client assets, given projected investment returns, client longevity and other variables.
"It's critical to put in as many quantitative data points as you can," Roger Pine says. "The model helps you understand what goes on under the hood of the business you are purchasing. It shows you what it means when you lose a client, or when you boost your conference budget for employees."
By working together on the formula, Pine says, they stopped arguing about the value of the business. Instead, they focused on coming to an agreement on the data points they would use in the calculation - criteria like client attrition and discount rates. They ended up valuing the business at roughly six times the company's net profits, Briaud says.
Now, more than two years later, the three partners have distinct management roles in addition to their client duties. Natalie Pine, 33, handles operations, hiring staff and working through the day-to-day scheduling and budgets. Roger Pine, 35, is Briaud Financial's chief compliance officer. And Janet Briaud is the chief investment officer, evaluating where clients can get the best returns for the least risk.
At the moment, Briaud says she's steering her clients away from stocks, and telling them to be prepared for a stretch of very modest average returns - two percentage points over the rate of inflation. She finds value in gold, some municipal bonds and oil and gas partnerships. However, most of her clients have a substantial portion of their assets locked up in 403(b) plans, which restrict their retirement investment choices to those offered within their employer's retirement program.
Meanwhile, Briaud Financial, which now has 11 employees, is expanding. The firm has opened an office in Austin and is hiring both planners and administrative employees. Roger Pine thinks that by solving the company's succession issues, Briaud Financial's partners are better able to focus on the firm's vision and growth. Briaud agrees.
"When I look at it now, it's hard to remember what I was so worried about," she says. "It's really worked out beautifully."
Kathy Kristof, a Financial Planning contributing writer in Los Angeles, also writes for Kiplinger's and CBS MoneyWatch.
Janet Briaud, Briaud Financial Advisors, College Station, Texas
Credentials: CFP; B.A. from University of New Brunswick; master's in physical education from University of Ottawa.
Experience: Former NAPFA president; member of the Texas A&M advisory board; former member of TIAA-CREF advisory board and the Vanguard investment advisory board.
AUM: $480 million
How I see it: "We have a very conservative approach. With every investment, we ask whether the reward you're getting is worth the risk you're taking."