Making associate a partner key to exit plan
Larry Lof began his transition out of the financial planning and investment advice business last year when he sold half his firm to his associate, Chris Lopez.
Larry Lof began his transition out of the financial planning and investment advice business last year when he sold half his firm to his associate, Chris Lopez.
Although the sale marked a significant step toward retirement, the 67-year-old Mr. Lof has no set date in mind when he ultimately would like to leave the business.
“I have no near-term plans to retire, other than disability or death,” he said. “I want to work as long as it’s fun to do. I’ve tapered off to a certain degree, but the whole practice is process-driven. I can walk away for a month and come back with no blips.”
A big incentive for selling half his practice was the fact that Mr. Lopez, 38, played a significant role in the growth of the firm, which he joined in 2000.
Mr. Lof also wanted to make Mr. Lopez a full partner before such a transaction became prohibitively expensive.
“I wanted to sell him half the practice before it became too valuable,” Mr. Lof said.
The firm, Lof Lopez & Associates LLC, is based in Tucson, Ariz., and counts 400 families as clients. It has $74.4 million in assets under management.
NEED FOR CONTINUITY
“I definitely wanted continuity for my clients,” Mr. Lof said. “I wanted [Mr. Lopez] on board emotionally and financially. It was key for clients to know there was going to be continuation after I left the firm, for whatever reason. Now there’s continuity going forward.”
This is how the transaction worked:
The firm was valued by a third-party adviser, Prairie Capital Management LLC, at about $2.4 million. The valuation was a multiple of the firm’s fees and its commissions for transactions, Mr. Lof said.
“It was certainly a good valuation, and we were glad to see it,” he said.
Mr. Lof said the outside valuation was key in getting the process started.
After a discount, Mr. Lof sold 50% of the firm to Mr. Lopez for $1 million. “I wanted to give him a break because he worked to create” the firm, Mr. Lof said.
The capital came from two places. Mr. Lopez paid $600,000, and then their affiliated broker-dealer, Cambridge Investment Research Inc., which has a program to facilitate such deals, lent Mr. Lopez the remaining $400,000.
Another layer to the deal is an option for each to buy out the other in case of death or disability. In either case, Mr. Lopez or Mr. Lof would have five years to buy out the other.
The move came as no surprise to the firm’s clients, Mr. Lof said.
“We sent out a one-page notification that stated Chris was a full partner, but the clients already knew that it was happening.”
He and Mr. Lopez now split everything 50-50, Mr. Lof said.
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