Q&A: How a 12-Year Succession Plan Helped HB Wealth Grow
It’s hard to go a month without a new report being listed in the registered investment advisor sector. Sequence planning test This founder-driven, customer-driven industry.
Just take it this week. According to Charles Schwab Annual RIA Benchmarking SurveyAbout 45% of firms with less than $250 million in assets under management have written succession plans. The figure is slightly better at 65% for firms over $250 million, and higher for Schwab’s top-performing firms. 15 factors have been identified in a rowAt 77%,
In the year At HB Wealth, an Atlanta-based RIA founded in 1989, the company’s succession strategy remained unclear after its first decade. In the year In 2001, the firm’s co-founder and CEO David Homrich He got up to run the AMB teamInvestment and wealth manager for client Arthur Blank, co-founder of Home Depot.
How did the organization succeed with such disruption? According to current CEO Thomas Carroll, he was planning ahead with remaining co-founder Andy Berg.
Facing disruption head-on, Berg eventually developed a 12-year succession plan that focused not only on how to run the firm, but on sharing equity with partner advisors.
In the year It led to Carroll’s appointment as CEO in January 2024. In the same year, he took over the sales of the company. Second minority for TPG growthAlso his biggest acquisition, in Tysons, MD.
Last year, the company He moved from Homrich Berg Wealth Management to HB Wealth. It continues to expand its service offerings this week. Announcing a new department focused on On institutional advice and OCIO provision.
Wealth management He recently spoke with Carroll about the company’s growth and continued focus on sharing equity among employees.
The following has been edited for length and clarity.
Wealth Management: Tell me about the roots of HB Wealth.
TC: Founded in 1989 by two former CPAs who left accounting to start an independent wealth management firm. RIA was not really a thing in 1989, so they were a little ahead of their time – in some cases trails. One of the founding fathers started it with a loan. Fast forward 37 years, and we’re at $32 billion in assets, 350 employees and thousands of customers. We started in Atlanta, which is still our headquarters. Most of our teammates live here, and in recent years we’ve begun to expand geographically.
WM: When did you join the organization, and how did that come about?
TC: I joined around 2020. I was actually part of the solution for both succession planning and leadership transition. Our founder, Andy Berg, served as CEO of the company for 20-plus years after our co-founder, David Heinrich, left to work for a client in the early 2000s. Andy began thinking about a leadership transition where he would move into more of a chair role and bring in someone to handle the day-to-day operations.
Andy and I knew each other socially at our church, our children’s schools, and in the community. He put me in as a tentative replacement. We worked together for about four years – I was the president at the time, he was the CEO. During that time, I increased my responsibilities within the organization, helped lead some growth initiatives, and built my personal equity stake in the company. Then, in January 2024, we changed the CEO title to me and he became the chairman of the board.
Here’s an interesting story: Andy developed a 12-year follow-up plan. The first four years were to look for a successor, the next four to work closely with the successor, and the last four to serve as chairman of the board before retiring. We are now in the final stages of that plan. A plan is best when it works.
W.Z.T.: What was the discussion about the ownership structure when you arrived? You remain employee-owned while private equity firms offer more money to take a majority stake.
TC: When I started, we believed in broad equity distribution – that was the company’s principle before I started. We always believe in treating leaders and mentors fairly within the company. Even with that approach, we still had an equity stake with our G1 shareholder, so we had to de-risk that bit.
I came in and built up my position at that time, mostly through trading with Andy. Ultimately, given our growth rate and the amount of equity that needed to be redeployed, we decided that it would be difficult to sustain that internal transition. We thought an outside minority, non-controlling transaction would be a good fit for us at our size and scale. In retrospect, it was definitely the right path for us.
New Mountain Capital made that first investment in September 2021, so we’re almost five years into that now. It was really a good thing for our company and it helped us in many ways. Facilitating internal transitions through the traditional buy-and-buy method is becoming increasingly difficult – it’s getting harder and harder to finance. We faced the challenge of redistributing earnings and reinvesting cash flow in the business to support growth to help young shareholders qualify for equity loans.
WM: And that’s why you made the TPG growth happen?
TC: Yes, three years from now—at the end of 2024, so we’re now a year and a half away. We went back to the equity markets and got TPG in, again in a slightly unregulated way. The three largest shareholders are now HB employees – we are the 86 largest equity holders – and then TPG will be second in capital stack and New Mountain will be third.
WM: What were some of the important things you wanted to control to ensure the right relationship with your minority investors?
TC: There were two things we made clear from the introduction. First, we believe very passionately in our fee-only approach to wealth management. It is the North Star for our business. In the year It was one of the key principles we were founded on in 1989, and it’s just as important today. A prerequisite for investment considerations is that companies should be willing to invest in a pay-only business. That means don’t come in the day after we close and start saying, “Hey, you guys should sell insurance” or “You should be a broker/dealer.” We were very clear about that, and to be honest, the market was very supportive of that approach. I think more and more businesses – and more customers and consumers – are attracted to that business model because it inherently removes some of the friction in the industry.
Number 2 was maintaining control. We were asking for a regulatory review from a deregulated administration, and that was a tough ask. But we were happy to have a partner willing to support that.
And then, obviously, we’re looking for partners to help us improve the business. We have found great application in our capital markets functions, marketing, finance, HR and even some of our sponsors’ executives as clients. There are many ways these sponsors support our success.
WM: How do you share equity with employees now?
TC: We still have a core philosophy that broad equity distribution is key to our long-term success. In January, we promoted eight new team members to shareholders. The way we facilitate fair distribution is different than before. Previously, equity was bought and sold in private transactions. We now have the ability to issue equity, and that was another key component of TPG’s investment—we established an equity program that allows us to issue a certain amount each year to promote equity recycling, which is critical to our long-term success.
In our employment agreement, we have an amount that we can award up to every year. I will go and request that funding from the board, and once the funding is approved, I will work with the executive team on how to leverage that equity.
I’ll just add one point: this is a key driver of people wanting to come to HB and people staying in HB. Our equality is very valuable. I have worked in financial services for a long time and have seen the value in other equity instruments in my career, and the value of HB equity is real. We have a record to show for it. It’s a very important part of why consultants want to come to HB and, in fact, why consultants stay at HB.
WM: You have a 100% W-2 employee model with multiple offices that have grown to six states. How has that model served as you’ve grown in recruiting and purchasing? Have you ever encountered advisors who push back against that structure?
TC: Philosophically, there are two key planks to our organization. I only offered our fees in terms of wealth management and broad equity distribution. Third, we strongly believe in consolidating businesses and not accumulating assets. There are other business models that take a more integrated approach and allow acquired firms’ consultants to act as independent contractors. We don’t feel this is the right approach for us.
We are very clear when talking to a consulting group or a firm considering merging with HB that means one compensation model, one technology stack, one investment unit. Obviously, the investment offering is tailored and tailored to client needs and preferences, but in these key parts of the business it is a “one HB” approach. And of course pay-only is another part of that.
If a candidate or organization doesn’t want to adjust around that, that’s okay—we’re not right. Better to know that before we enter into the deal, rather than later. We are well served. It will definitely reduce the crowd of consulting groups and companies looking to merge with HB because not everyone is lined up around this and that’s okay.
WM: What are your goals for the company over the next few years? Are there specific targets for size, footprint or geographic expansion?
TC: The first goal is always to serve our existing customers efficiently – it starts with that. Too many business models are built on the premise that the next customer is the best customer. We want to retain existing customers that we are privileged to serve. We’re targeting 98.5% customer retention this year, and we’re probably running north of 99%.
Take care of your existing customers, and generally, they will take care of you. This leads to organic growth. Historically, 60% of our new business has come from referrals from clients to friends, and that’s great. We want to continue that, but we also want to add more lead generation at a strong level. We invested more in our digital marketing efforts and built a stronger marketing team. We’re trying to do more digitally and continue what I think has been the best-in-class organic growth from a Salesforce sales perspective over the last five years.
We also lean a little towards M&A. We will never be a serial buyer – that’s not our thing, that’s not our culture. But when we see a firm in a market that we think makes sense, we get in. Continued expansion in the Southeast, the Mid-Atlantic and the Sun Belt – I think we have a real opportunity to expand our presence in those markets.
WZT: Will you be returning to the market in the near future in terms of capital?
TC: We are a great capital, but things move fast in this industry. Although we may be in a good position today, that doesn’t mean we’ll have the capital we need a year from now.
