The Case for Building a More Enduring Firm: Creating Value Through Continuity and Talent

– Insights from John Furey (Managing Partner at Advisor Growth Strategies) from our 2025 ClientWise Ensemble Leaders’ Summit –

At this year’s ClientWise Ensemble Leaders’ Summit, John Furey delivered a pointed message about the future of advisory firms and what truly drives enterprise value. His argument was straightforward: the firms that will matter in the next decade are those that eliminate leadership dependency, build capable teams, and operate like institutions rather than owner-centric practices. His remarks challenged several long-held assumptions and provided a clear framework for leaders who want their firms to endure.

The Durable Growth Imperative

The conventional pillars that have supported advisory practices over the years are gradually showing signs of strain, making the quest for more enduring value increasingly critical.

Four key metrics illustrate the pressures facing the industry and highlight the need for a shift in perspective:

1. Tepid Growth: The illusion that market growth (AUM) will perpetually buoy your firm’s top line has faded. Underneath the market's rising tide, more and more firms are struggling with slow organic growth. Sustainable, non-market-correlated growth is essential for a high valuation.
2. Aging Practitioner Base: The data shows that the average age of advisors keeps rising, and the challenge of recycling talent remains sharp. While efforts are made to attract younger advisors, many finance majors are choosing more profitable fields like investment banking and management consulting, emphasizing the need to make wealth management more appealing.
3. Technology Won’t Replace Referrals: Despite the hype around AI and digital marketing's potential, growth remains a ‘hand-to-hand in the trenches’ effort. It's still a heavily referral-driven business that depends on a solid sales process – not just on abstract scale or repeatable methods. 
4. Size Matters: Large practices are getting larger faster. Firms that reach a certain size and scale can develop disproportionate capabilities, making it increasingly difficult for smaller practices to compete. Getting on the right side of this curve means creating a virtuous cycle.

The Evolution from Owner Mentality to Institutional Mindset

Furey identified a predictable inflection point around 5 million in revenue. At that stage, leaders must decide whether to invest in people and structure or accept stalled growth.

When an owner transitions from the initial, exciting, yet terrifying ‘do whatever it takes’ phase, they often adopt a textbook owner mentality: hire contributors, pay them well, and pocket the rest. While profitable, this model typically lacks long-term career opportunities for the team, eventually leading to stagnation. To break through and build a truly enduring firm, you must:

• Develop the team and provide growth opportunities.
• Institutionalize processes to ensure all services are delivered in a uniform, efficient, and replicable way. This is a commonality among both the largest network practices and elite RIAs.
• Focus on key drivers: consistent organic growth, effective client segmentation (building services around identified client needs), human capital development, and sophisticated P&L management.

Setting the Stage for an Internal Equity Transition

The pathway to an enduring firm is fundamentally tied to proactively managing business equity and executing an effective transition. To achieve this, most advisors prefer to transition their practice internally rather than pursue a potentially more disruptive external sale.

Growth and Buyer Due Diligence

Regardless of the transition path, continued growth is a non-negotiable. A next-generation advisor will understandably be hesitant to purchase equity in a firm whose revenue has been stagnant for several consecutive years. Furthermore, the focus of due diligence has shifted dramatically. What used to be a valuation process driven almost exclusively by pro formas, revenue, and profit data is now far more complex – with potential buyers focusing on factors like the strength of the non-owner team and, crucially, how many team members can grow the top-line revenue of the business. A strong, growth-capable team is fundamental to managing and maximizing your business equity.

Rethinking Valuation and Internal Deals

While it's easy to get sidetracked by industry multiples (e.g., 4x revenue), real-world valuations are worked out by the parties based on fundamentals. Owners must stop worrying about simple multiples and start focusing on the drivers of a premium multiple. Premium valuation drivers include:

• Growth that is uncorrelated to market performance.
• The strength of the team and their long-term runway in the business.
• Effectiveness at managing the business (P&L management).

Contrary to popular belief, internal transactions generally occur at fair market value—without any significant discount compared to an external sale. The idea that an internal deal must involve a discount or that the entire team will eagerly buy out the owner five years before exit is simply incorrect. An enduring firm requires bringing on partners much earlier than most founders expect.

Bridging the Expectation Gap in Internal Succession

Internal succession plans often fall apart because of a significant expectation gap between current owners and the next-generation advisors. That's why it’s crucial to have a continuity framework where both sides consider each other's needs, ensuring a smooth and successful transition.

In many cases, an internal transfer of a highly valued practice is financially unfeasible for the next generation (for example, a 20% stake in a $10 million firm requires a $2 million after-tax payment). This calls for a flexible approach to equity and compensation. Owners need to be understanding of their successors' financial situations and goals.

More firms are adopting instruments that provide economic participation without requiring a large capital investment for full voting rights. Phantom stock, for example, grants a right to a cash payout based on the company's future value growth. It functions as an unfunded liability on the balance sheet that doesn’t disrupt the ownership structure if the individual leaves the company—offering a low-cost way to motivate growth among dedicated team members. 

Alternatively, a profits interest gradually transfers real value from the current owner(s) cap table by granting participation in future firm value growth above a certain threshold. Although it requires a financial buy-in from the next generation, flexible structures and vesting schedules can be created that, with enough time, make it a practical long-term solution.

You should also keep in mind that, while phantom equity is regarded as a long-term incentive plan (LTIP) and taxed as ordinary income, a profits interest generally benefits from a much more favorable capital gains tax treatment. However, synthetic equity tools can be especially valuable as a catch-up mechanism for owners who have waited too long to offer a profits interest or who want to keep key next-generation leaders engaged with the business amid the possibility of an external sale.

A Continuity Roadmap: Waterfall and Ratios

To make an internal sale more feasible, you’ll likely need more buyers than you think. A good rule of thumb for effectively cycling equity is:

For every partner, you should have three next-generation buyers.

Owners should aim to develop a long-term equity waterfall—a clear plan showing when equity becomes available for purchase and identifying potential buyers. Alongside this, you should establish a dedicated, repeatable long-term owner's compensation plan to accurately forecast profits and replacement costs. Together, these form the foundation of your forward-looking strategy that sets a high-value, lasting firm apart from just a lifestyle practice.

Coaching Questions for Advisory Leaders:

1. What specific, measurable steps will you take this quarter to further ‘institutionalize’ your core processes and services (beyond what is required for your current revenue) to ensure your growth is more sustainable and less reliant on market performance?
2. Which member of your current team shows real potential to become a future revenue-generating partner, and what specific equity (or synthetic equity) plan are you ready to present to them in the next 12 months to close the ‘expectation gap’ and earn their commitment?
3. If you had to choose one valuation driver to prioritize for the next three years (such as growth unlinked to the markets, team strength and dedication, or P&L management), which one would you choose? Also, what is the single biggest investment of time, money, or resources you could make in that area to ensure it commands a premium multiple?

About ClientWise LLC
ClientWise is a leading business and executive coaching firm serving financial professionals. We help advisors, managers, and executives grow revenue, build high-performing teams, and achieve measurable business results. Our certified coaches, members of the International Coach Federation (ICF), provide customized, action-oriented solutions tailored to each client’s goals and challenges.

With deep expertise in the financial industry, ClientWise empowers firms to enhance performance, improve client engagement, and develop next-generation leadership. Our mission is simple: help financial professionals get clear, get focused, and get results.

Questions Financial Advisors Often Ask

What pressures are driving the need for more durable growth in advisory firms?

Four key pressures are reshaping the industry: many firms are experiencing slow organic growth, the advisor population is aging while younger talent chooses other industries, growth remains heavily referral-driven despite technology advancements, and larger firms are accelerating their scale advantages—making it harder for smaller practices to compete.

Why must advisory firms evolve from an owner mentality to an institutional mindset?

Firms that reach around 5 million in revenue hit a predictable inflection point. If leaders continue operating with an owner-centric model—hiring contributors, paying them well, and pocketing the rest—growth typically stalls. Building an enduring firm requires investing in team development, creating growth opportunities, institutionalizing processes, and focusing on key drivers like organic growth, human capital development, and strong P&L management.

What do buyers evaluate when assessing an advisory firm for a transition or equity purchase?

Buyer due diligence now focuses heavily on the strength of the non-owner team and how many team members can grow top-line revenue. Growth is essential; next-generation advisors are hesitant to purchase equity in a firm with several years of stagnant revenue. Valuation is no longer driven solely by pro formas and profit data—it incorporates people, capabilities, and growth potential.

Do internal equity transitions typically involve discounted valuations?

No. Internal transactions generally occur at fair market value and do not inherently require discounts compared to external sales. The belief that internal deals must include a discount—or that the entire team will eagerly buy out the owner on a short timeline—is incorrect. Enduring firms bring partners in earlier than most founders expect.

What factors drive a premium valuation for an advisory firm?

Premium multiples come from three primary drivers: growth that is uncorrelated to market performance, the strength and long-term potential of the team, and effective P&L management.

What causes internal succession plans to fall apart?

A significant expectation gap between current owners and next-generation advisors is the most common issue. High valuations often make internal purchases financially unrealistic, requiring flexible approaches to equity and compensation that address both sides’ needs.

What equity structures can help next-generation leaders participate without large capital commitments?

Phantom stock provides economic participation through future value growth without requiring voting rights or major capital investment. Profits interest grants participation in value growth above a threshold and can be structured with flexible buy-ins and vesting schedules, making long-term ownership more feasible.

How many next-generation buyers does a firm need per owner for a feasible internal transition?

A helpful rule of thumb is to have three next-generation buyers for every partner to effectively cycle equity and make internal transactions more viable.

What components make up a strong continuity roadmap?

A long-term equity waterfall that outlines when equity becomes available and who the potential buyers are, paired with a repeatable owner’s compensation plan that accurately forecasts profits and replacement costs, forms the foundation of a continuity roadmap that supports a high-value, enduring firm.