First Steve Cassaday cloned himself then he began executing his succession plan

May 18, 2011 — 3:38 PM UTC by Steve Garmhausen


Brooke’s Notes: Succession plans are everywhere about us at workshops, in webinars, on white boards and in our dreams. There needs to be plenty of them because there are thousands of big successful RIA firms headed by Baby Boomers drifting to a an uncertain end. But there are few big succession plans that we can point to and say: this is how it really gets done. See: Favorite succession plan of RIAs remains the same: none at all So when Steve Cassaday agreed to tell the story of how he made a deal internally, Steve Garmhausen took careful notes and laid it out here as a worthy case study.

In April, advisory-firm owner Steve Cassaday and three of his veteran employees signed off on a deal that helps pave the way for the younger men to one day take control of the firm, Cassaday & Co.

Finalizing the agreement caused some jitters, and not just for the entrepreneur giving up partial control of his 18-year-old business, in McLean, Va.

He became an RIA only after a harrowing departure from a wirehouse. See: A breakaway story, old-school style.

“When you sign a document that binds you like that, you get little shudder,” says Cassaday, 55. “They did and I did.”

That doesn’t mean the agreement was a bad one: To the contrary, all parties involved agree that it’s a good one for the partners, other Cassaday employees and the clients of the firm.


Cassaday & Co.’s decisive action is noteworthy at a time when leaders of advisory firms, particularly those of smaller firms, are concerned with how to ensure that their businesses continue to have value after the first generation. The issue is becoming more resonant as the country’s advisers, many of them baby boomers, approach retirement age.

“The question is whether a small independent firm is going to be a viable option if the average age continues to increase,” says Mark Tibergien, CEO of Pershing Advisor Solutions.

Tibergien recommends that firms leave at least five years to put a succession plan in place. But that five-year window is a bare minimum. “Ideally, you begin the business with the end in mind,” says Tibergien.

That’s exactly what Cassaday did. Though he says he wants never to retire, Cassaday knew he needed a plan to take care of staff and clients in the event of his absence. They had placed their trust in him, after all.

“One of the ways people often passively betray that trust is not thinking about succession,” he says.

Wanting to ensure that his new firm lasted more than a generation, the one-time Prudential Securities rep started recruiting talent fresh out of college.

“I hired outstanding, brilliant people and then groom them to do what I do,” he says. “Now, the parts are interchangeable: These guys are largely my peers in terms of their skill sets. We have a bench and my clients won’t be looking for a new advisor when I retire, and they are 85.”


Christopher Young started at the firm in 1999 as director of research, learning “the business inside the business” at Cassaday’s side.

“From day one when I was hired, I understood that eventually I’d become one of the advisers,” says Young, who like the two other new co-owners is a senior vice president.

About eight years ago, the firm put a buy-sell agreement in place. That agreement is backed by a multi-million-dollar insurance policy, on which the three senior vice presidents—Young, Christopher Krell and Justin Harris—pay the premiums. If something happens to Cassaday, a succession plan funded by insurance buys his interest from the estate.

The next step, says Cassaday, was to ensure continuity. “I love my work and believe I will continue working until I can no longer do so. At that point, or perhaps beforehand, I am confident that my colleagues will want to make an additional investment in the firm. They recognize that it is a great investment where they largely have control of the outcome,” he says. “Selling to a third party is highly unlikely. I haven’t seen any of those deals work for the parties. More importantly, we would always view such a transaction from the clients’ perspective: Is it a better deal for them and why? It has never been about the money for us.”

Over the course of the past year, Cassaday and the three senior vice presidents worked out a two-part arrangement: a retention agreement and a deal for a 10% equity stake in the company. The deal closed May 1.

“Hopefully in the long-term future I’ll sell them the rest of the company,” says Cassaday.

The equity stake offered to each of the senior advisors was based on their respective revenue contribution to the firm; they have a combined $500 million of AUM.

Deal structure

Cassaday explained the structure of the deal in detail:

The equity stake consists of a purchase of S Corp shares, governed by a shareholders agreement that restricts transfers. If the advisor leaves, these shares are “put” back to the company at cost, so there is a significant retention feature. The principals participate in the company’s revenue directly through a passthrough of profits. The package was designed to produce cash on cash returns in the “teens” right out of the gate.

The arrangement also grants phantom stock, which vests in the event of a change in ownership above a certain threshold. If there is a liquidity event these shares could allow the new principals to participate in full or part. The phantom shares can be forfeited if the shareholder leaves and so also have a significant retention feature.

There is also a significant payment that must be made if clients leave with the advisor.

The substantial value of the company meant that buying even a small portion of it was expensive. To solve that problem, Cassaday allowed the three employees to finance a portion of the purchase, borrowing the money, at interest, from him.

Cassaday’s successors knew that the retention-for-equity arrangement limited their options in a way they hadn’t been limited before. In the fall of 2009, Barry Glassman, an advisor who had operated a de facto “firm-within-a-firm” at Cassaday & Co., had left to start his own firm. See: New RIA with a Royal touch.

Glassman’s departure underlined the importance of getting the elements of a succession plan done, says Krell, who joined the company in 1997. Glassman declined to be interviewed for this article.

Now Krell, Harris and Young knew that they were effectively walking away from the option of starting their own firms. But being an entrepreneur may be overrated, says Krell. “I have a lot of small-business owners as clients,” he says. “It’s not all it’s cracked up to be.”

Executing a business plan without having to worry about issues like payroll or healthcare sounds like a welcome prospect, he added.

Cassaday wears several hats at the firm: He’s an adviser, he’s the CIO—and he’s also the CEO. With multiple successors being groomed, roles may have to be divided up eventually.

Naturally, Cassaday has a plan. Allison Huke, hired 10 years ago as his administrative assistant, has advanced to the point where she runs the firm’s day-to-day business and is the COO. Along the way she’s earned an MBA, with Cassaday footing half the bill.

Testament to a strong organization

“My guidance to (the new co-owners) was to hire a CEO or allow Alison to transition to that in the event of my death or incapacity,” says Cassaday.

Working out the agreements’ details may have moved the parties out of their comfort zones a bit, but, says Cassaday, “It’s a testament to how strong an organization we are that we were able to do it.”

Harris, who joined Cassaday in 1998, agrees that a baseline of trust was essential to the deal. “I think that if firms doing this do not have solid relationships, there are definitely going to be issues,” he says.

In the end, the parties all gave enough ground so that nobody felt as though they’d really gotten over.

“The attorneys on both sides were trying to fire us up, but finally we just told them to go away,” says Cassaday. “It ended up being an agreement nobody was really delighted with—which means it was great agreement.”

Now that key parts of a succession plan are in place, is it too early for the next generation of Cassaday leadership to think about their own successors?

Not at all: Three younger members of the firm are already being groomed, and two more were recently hired to be on that path, says Harris.

No people referenced

Mentioned in this article:

Royal Alliance
RIA-Friendly Broker-Dealer
Top Executive: Art Tambaro

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