Jon Wax, president and CEO of Waller and Wax Advisors, knows a thing or two about older advisors’ succession planning from the buyer’s perspective after acquiring his mother Laura Waller’s practice in 2007. The key to doing it successfully, he says, is to blur the line between where the exiting advisor ends and where the new one starts.

“You’re not just blending a business, you’re blending philosophies,” he says. “That’s why it’s important the person leaving sticks around for a to help transition the clients.”

Wax says Waller planned years in advance of her retirement—strictly speaking a partial retirement—before selling. She ended up doing so to her son, but Wax says older advisors don’t have to keep it in the family. “Your broker-dealer’s annual conference is a great resource,” in helping to identify potential successors, he says. “Or your broker-dealer will help you identify candidates in your area.” Wax and his mother both use Raymond James, which, Wax says, “was an integral part of our succession plan.”

It really was—Raymond James fronted the money with which Wax bought out Waller, an “arm’s length” deal the advisor says is key to a successful transition. “You really want to make a clean break,” he says. “Don’t do a seller-financed deal.”

That means the type of deal where the older advisor sells his or her share in return for a cut of the younger advisor’s future production, which ends up a lose-lose for everyone. “It’s difficult to motivate an advisor when the benefit goes to someone who isn’t even at the practice anymore, which is why I’d suggest third-party financing,” Wax says. The advisor, who is paying off his loan from his revenue, says financing deals like these don’t grow on trees, especially during a recession, but it’s certainly worth asking about as an acquisition option.

Waller and Wax kept their family relationship out of the deal, having the business valued independently by Raymond James, upon which it also based its loan to Wax. “Raymond James looked at the staple of the business, which is fee business,” Wax says. “They used a multiplier, came up with a number, which Laura and I then negotiated.” After the mother and son agreed on a price, “Raymond James looked at the number, agreed and participated in the deal.”

Waller has been in the business since 1978, launching her independent practice in 1984.

Enamored of the family business, Wax joined Raymond James as an advisor in 1996 and built up his own business from scratch as an employee of the firm, preferring to prove himself on his own before ultimately merging books with Waller, which they did in 2002, five years in advance of the actual buyout.

While the two advisors’ books were merged, Wax says he didn’t feel like he was buying back his own clients. “While Laura officially owned the book, the purchase price was based on a ratio of what we both brought to the business,” he says.

The book, which is now Wax’s, consists of 500 clients with an average account size of $700,000. The firm manages $250 million in assets.

While the deal went through two years ago, Waller is still around as “a constantly reassuring presence,” Wax says. While she’s only in the office once per week, she still maintains a very small book of favorite clients and helps out researching investment ideas, but her main focus is on her personal life.

Still, Wax maintains that a two-year grace period following a buyout, and two years before, if possible. “Every situation is different, but it would be good to join a firm two years ahead of time, to sit in on meetings and eventually lead them so it’s a sliding change rather than abrupt,” he says.

The mother/son duo also marketed the transition to clients initially as an opportunity to get advice from two experts instead of one and then access to two advisors with the same conservative opinion and a way to provide consistent, long-term service by Wax taking the reins.

Wax, who is 38, has a daughter and a son age six and four, respectively, who he hopes might follow his lead when the time comes, and that includes learning the ropes outside of the family business before bringing those skills to bear at Waller and Wax. For his part, Wax will ensure he’s emotionally ready to transfer the business. “The worst thing a prospective seller can do is to bring in a prospective buyer and leave them disappointed because they’re not ready to sell,” he says.

His last advice is to think beyond base monetization when selling the business. “It’s not about who’ll pay the most, but who is the best person to take over from you,” he says. Ultimately, succession planning is as much about leaving a philosophical legacy as it is cashing out, a testament to your life’s work. And if you can hand the business down to your children, so much the better.

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