Key Takeaways
Ownership structures don’t fail all at once - they erode value gradually until the consequences become unavoidable.
When ownership doesn’t evolve, firms trade growth and margin for short-term comfort, often without realizing the cost.
Proactive succession planning isn’t about timing an exit - it’s about preserving long-term value for owners, employees, and clients.
“How did you go bankrupt?”
“Two ways. Gradually, then suddenly.”
- Ernest Hemingway, The Sun Also Rises
When I turned 40, I traveled to Munich with my father to take delivery of a new BMW 335i convertible. We spent two weeks driving it around Europe, loosely following the Tour de France (we like things with wheels), before shipping it home from Nice.
That BMW was too heavy to be considered much of a sports car. But at high revs the engine sounded glorious – not unlike Barry White gargling wasps. It was reasonably sporty, very sturdy, and perfectly reliable. I named it Gretel.
I drove that car for ten years with very little trouble. Then, when I went shopping for something new, I discovered that my ten-year-old BMW wouldn’t bring much in trade. Incredulous at the thought of letting dear Gretel go for cheap, I gave my car to my then 16-year-old daughter.
That money-saving decision turned out to be terribly expensive.
Gradually, then suddenly. Over the next six years, the repairs came one at a time, growing both in magnitude and frequency. A tire. Then a wheel. Brakes. Oil leaks. A head gasket. Eventually, rebuilding the fuel injection system. One day my mechanic, Travis, was checking the BMW in for a repair and asked me for the model number. I told him it was supposed to be a 335i, but he probably thought of it as his 401k.
Each issue was manageable on its own. Annoying, but not decisive. Gretel still ran. It still did what we needed it to do. But taken together, those repairs would have paid for my daughter to have driven a new BMW (I didn’t tell her).
When Ownership Structures Stick Around Too Long
Ownership structures at many RIAs follow a similar path.
The model that built the firm, typically a concentrated group of founders who drove growth, served clients, and captured the economics, can persist long after it has outlived its usefulness. The business is still profitable. The clients are still there. The distributions are still attractive.
So nothing changes.
Why would it? The money is good. The alternatives are uncertain. And changing ownership often requires uncomfortable conversations about control, economics, and succession. Those are easy to defer when nothing feels broken.
But businesses are perpetual. People, and their careers, are not. Most of our clients find us when their firms are between 25 and 30 years old; we’ve seen the pattern.
Warning Lights on the Dashboard
When ownership structures do not evolve alongside the business, small issues begin to emerge. Like the warning lights that were always illuminated on the dashboard of my old BMW, they are easy to ignore. None of them, on their own, are cause for alarm.
Taken together, they tell a different story.
Organic growth begins to stall. Founders who built successful books of business are often satisfied with what they have accomplished, while the next generation may not feel adequately incentivized to develop new relationships if the path to ownership is unclear. Growth may not stop, but it slows and becomes less reliable.
Margins begin to slip. In the absence of equity participation, firms often rely more heavily on W-2 compensation to retain and motivate key contributors. What feels like a practical solution is really a substitution, replacing ownership with salary. Over time, that substitution becomes expensive, compressing margins without solving the underlying succession issue.
Clients start to notice. Wealth management is a long-duration business, and clients want to know that the firm advising them today will be there tomorrow. When leadership appears static and succession unclear, some clients quietly begin to look elsewhere.
At the same time, the firm’s strategic edge can dull. The industry evolves. New service models, new technologies, new client expectations. Without a developing next generation of leadership empowered to respond, firms risk falling behind.
Eventually, people leave. Talented professionals who do not see a future in the ownership structure will find one elsewhere. And when they do, they may not leave alone.
Gradually… Then Suddenly
None of these issues are fatal in isolation. Most develop gradually. Many can be rationalized. All can be deferred, until they cannot.
The challenge for RIA owners is that valuation does not adjust in a straight line. Small changes in growth, margins, and perceived risk accumulate over time, often unnoticed, until a transaction, a transition, or a disruption forces the market to take a clearer view.
When that happens, the impact can feel sudden, even if the causes have been building for years.
A Lesson Learned (Eventually)
I eventually learned my lesson. When my wife’s BMW started showing the same early signs, nothing major, just a few things that were not quite right, I traded it in as fast as I could.
Ownership structures do not come with trade-in values posted on the window. There is no easy way to know exactly when the cost of maintaining the status quo begins to exceed its value.
But the principle is the same. Regular maintenance matters. So does being realistic about when something that once worked starts to work less well.
In the RIA business, thoughtful planning and a willingness to address ownership proactively can preserve and extend the value that founders worked so hard to create. Because while businesses can endure, they do not do so automatically.