Scott Hanson and Pat McClain throw off 'death grip' of 'cognitive dissonance' by stepping down from co-CEO positions, which one attests could 'suck the life' from him
The radio-star serial co-founders of an $18-billion RIA growth machine in Folsom, Calif., aren't apologizing and shouldn't, experts say -- rather they probably should take a bow for decisive action.
7 min read- Allworth's co-CEOs Hanson and McClain are stepping down after six years post-Parthenon acquisition.
- Founders transition to vice chairman and partnerships roles, focusing on marketing and M&A.
- Decision reflects a desire to escape corporate burdens and refocus on entrepreneurial passions.
Brooke's Note: I rewrote the top of this story to clarify that what happened here quickly – to the outside eye – was the rise of up of the Allworth phenom [the name was born in 2019] and power-growth roll-up concept that began in 2017 with the sale of 70% of the old Hanson and McClain RIA to Parthenon. No question Scott and Pat were slugging it out for decades before that in various iterations. Also, we called it an exit – as they are departing their accustomed roles – but these guys are for now planning to stick around. I'm sure that's a relief to their staff, community and the RIA world.
Scott Hanson and Pat McClain sent minor shockwaves around the buy-and-hold RIA world by co-founding, leading, and now exiting co-CEO slots at “Allworth Financial” in Folsom, Calif. – though their original practices go back decades.
Experts are clear it's likely a shrewd, healthy and effective move.
The two top executives of the $18-billion retirement-focused RIA announced their intent yesterday (Aug. 2) just six years after selling 70% of the firm to Parthenon for a reboot into more of a roll-up. See: Scott Hanson sells RIA to Parthenon after 'semi-retirement' drove him half-crazy -- so he could work full-time to get to $10 billion
“We could not be prouder of Allworth’s success and growth over the past 30 years,” said Scott Hanson in a release. “Both Pat and I feel now is the time to hand over the reins to a new CEO who can build on the company’s strong track record.”
Staying on
The surprise factor of their downshift is multi-faceted.
Hanson, 56, and McClain, 60, are considered too young to “retire" from CEO roles by industry standards; the firm is still growing -- $16 billion was added in its first six years – and the number of staffers has grown from 60 to 400.
Going forward, Hanson will assume a vice chairman role and says he'll focus on marketing. McClain will continue leading the organization’s mergers and partnerships division.
Both Hanson and McClain are top-notch entrepreneurs and enjoyed that more than running a corporation, says Dan Seivert, CEO and managing partner of ECHELON Partners.
“In this case, these guys are entrepreneurs and they've done a nice job morphing from entrepreneur to corporate," he says.
"I think they could do it, but it's really not that fun, and I don't think they want to do it -- all of the HR, all of the formalities, the hassles. The word ‘corporate’ is a backpack full of stuff.”
Too much baggage
Scott Hanson sells RIA to Parthenon after 'semi-retirement' drove him half-crazy -- so he could work full-time to get to $10 billion
Hanson says he spoke to the board about a month ago. “I don't like keeping secrets. I wanted to be transparent. If we can help shape the narrative, it's more helpful than someone else coming up with their conclusions.”
There's also a practical aspect of casting a wide net for more candidates in a tight talent market, he adds. “I think it might be helpful for us to find a candidate, if the world knows we're looking for someone."
Hanson is very “full-disclosure” about what the next CEO is facing, going so far as to tell Citywire; “there …[are] parts [to the job] that kind of suck the life out of me.”
“I'm getting farther and farther away from the clients, and I'm in meetings all day and don't get to talk to clients. Board calls and meetings about this and that, such as cybersecurity - you name it, it's endless,” he said.
Accepting change
Acting with such deliberation means reconciling opposing psychological forces, says Cecile Munoz, CEO of U.S. Executive Search in Los Angeles.
“Founders contemplating an equity transaction will often experience a form of cognitive dissonance,” she says.
“While they see the value of taking a substantial equity partner to drive growth and change, they may be unprepared to accept and handle all the changes ahead.
"Most advisors did not set out to build larger enterprises run by well-trained, purposefully recruited MBAs and other skilled talent.
Story Timeline
The road of transformation from practice to firm and on to become a mega-RIA demands different things of its leaders – expertise, time, talent, and investment,” she says.
Dodging stagnation
Resolving internal conflicts is not only good for personal well-being but good for Allworth, says Mark Tibergien, former CEO of Pershing Advisor Solutions and head of RIA practice management at Moss Adams.
“In my experience, way too many founders have a death grip on their business. They wait far too long to turn over the reins, and as a result, the business begins to stagnate.
"It appears in this case, the timing is right for both the company and the founders to make the transition.”
Lightyear buys Allworth Financial at a white-hot valuation, despite short track record, after Scott Hanson cracks a marketing and comp code
Tibergien adds that telegraphing the move ahead of time has its own logic.
"The leaders are making a commitment to an orderly transition; that is not bad messaging even in an active M&A market.
"In fact, as a prospective seller, one should be grateful for the transparency that they are demonstrating in their thought process,” the industry expert says.
Heady growth
Hanson looks back fondly on the early 1990s when the business was founded.
“It was such a simple business back then,” he says. “Running the business just became more complex."
Parthenon bought a 70% stake in the firm in 2017. The company changed its name to Allworth in 2019 and was sold the following year to Lightyear Capital in New York City. See: Lightyear buys Allworth Financial at a white-hot valuation, despite short track record, after Scott Hanson cracks a marketing and comp code
The company has closed five deals this year, including The Harvest Group, a father/daughter duo. Roger, 81, and his daughter, Laurie Ingwersen, manage $260 million.
Last year, the firm closed seven deals.Hanson says the M&A market is still repressed, albeit rebounding. “Last year, was more of a challenging time. We're all being more creative on our deal structures.”
Recently, personnel issues spilled into the legal realm when Allworth advisor Jill Pivato left and joined Creative Planning, the Overland Park, Kan., wealth management firm headed by Peter Mallouk.
At issue were 33 household accounts worth more than $40 million in assets. See: California judge is siding with $210-billion Kansas RIA over $16 billion California RIA in poaching case, despite seeming hard evidence and damning admissions -- but new twists are possible
Work-Life balance
Hanson and McClain have a history of navigating countering entrepreneurial impulses.
In 2004, they founded Liberty Reverse Mortgage and sold it three years later to Genworth Financial Inc. for $50 million.
Putting the Hanson and McClain exit into a broader context makes even clearer the shrewd nature of their career choices.
“The notion that an exceptional CEO is one who remains at the helm of a fast-growing and rapidly changing firm is simply not the case,” Munoz says.
“Generally speaking, we see transition in the CEO seat every seven-plus years. One of the most important and yet most difficult decisions any CEO can make is knowing when it is time to step down and turn over the helm to the next leader."
Hanson says the shrewd business move has personal underpinnings – his work-life balance had become non-existent.
“I don't have the same work-life balance I used to have. A lot of advisors are really pretty good about having balance, and I wanted to get a little bit of that back from a personal standpoint," he says.
He has older children but two are still at home, and his youngest is in 7th grade.
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