Passing the Baton

Photo: Jason E. Kaplan
Staffers at Ferguson Wellman

Ferguson Wellman is in the middle of an ambitious plan to increase the number of employees who own stock in the firm. It is a move aimed at addressing the demographic time bomb that is about to hit the wealth-management industry.

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Peter Jones has a characteristic wealth management firms need more of: youth. At 29, Jones is vice president of equity research and portfolio management at Ferguson Wellman Capital Management, a Portland wealth management and investment advisory firm.

Wealth managers are clamoring to hire and keep young people like Jones as a matter of necessity: The industry is aging fast. It is full of predominantly older men who are retiring or are close to retirement.

The sector struggles to attract younger and diverse professionals because it is often perceived as hard for newcomers to build a portfolio of clients from scratch.

But Ferguson Wellman is different from many firms in the space. It has chosen to transition ownership to the majority of its employees rather than sell to an outside investor.

This opportunity to own part of the company is a powerful tool in attracting talented people, and one that is rare in wealth management.

For Jones it was a big reason for leaving his previous employer, UBS Financial Services, and joining Ferguson Wellman in his mid-20s. “A central attraction of working here is becoming an owner and that the amount you own is based on merit. That resonated with me five years ago at 24,” he says.

As the founders of wealth-management firms increasingly face the conundrum of how to transition ownership of their companies as they enter retirement, the employee-ownership model may become a more common way of passing on the baton to the younger generations of investment professionals coming up the ranks.


Ferguson Wellman was founded in Portland on Dec. 1, 1975, by three investment advisory professionals: Joe Ferguson, Norb Wellman and Monte Johnson.

At the time, it did not seem like a great time to launch a firm. On the company’s website, Ferguson joked: “In 1975, public confidence was the lowest since the Great Depression. We were at the tail-end of Watergate. We had recently devalued the dollar. We were at the end of the Arab oil embargo and the height of the Soviet Union. So Norb thought that might be a good time to start a company.”

Despite those obstacles, by the mid-1990s the firm had grown to manage $1 billion in assets. In 1997 its then owners sold the majority of shares to five directors: Mark Kralj, Dean Dordevic, Steve Holwerda, George Hosfield and Jim Rudd.

Those five directors are now preparing to retire. This has brought up a conundrum: how to pass on ownership in a way that creates minimal impact on their clients, some of whom they have had relationships with for decades.

They are like many other wealth-management firms: They face a wave of retirements, while at the same time facing a dearth of younger people willing to take over.

“There is a lot of turnover in the investment/advisory industry,” says Holwerda, who, at 57, expects to work at the firm for another 10 years. “It has been like that for the last 10 years and will continue to be. It was an industry founded by people in their 40s and 50s when it was starting to get its growth 20 years ago.”

The aging demographic is borne out in the data on the sector: 43% of U.S. financial advisors are more than 55 years old, according to a Deloitte report, ‘10 Disruptive Trends in Wealth Management.’ The sector will need to recruit and train nearly 240,000 advisors just to maintain client service levels, say the report’s authors.

The five owners could have sold the firm to an outside investor. Plenty of private-equity firms have approached the firm with interest to buy, says Holwerda. But the idea of selling to an external bidder was not in keeping with the company’s mission to stay privately and locally owned.

“There are opportunities to sell your company to other people. All of them have contacted us at some point to buy our company. As we looked at what that meant — the changes that would occur announcing that to our clients and our employees, and the arrangements of doing that — we asked ourselves, ‘Why can’t we just do that ourselves?’ We can create continuity for our clients, stability for our employees, and continue to be employee-owned and private forever.”

Ferguson Wellman is not alone in pursuing employee ownership. Corey Rosen, founder of the nonprofit National Center for Employee Ownership, keeps track of companies that become employee owned. “I see a lot of references to wealth management,” says Rosen.

Two well-known investment advisory firms have employee-ownership programs: Edward Jones (headquartered in Missouri) and Baird (headquartered in Wisconsin). Closer to home, investment firm Arnerich Massena transitioned to 100% employee ownership in 2017.

The Ferguson Wellman owners decided to transition ownership to their employees in a process that started two years ago, when they sold 15% of their equity. That process gained momentum in January this year when they sold another 24%. The owners will sell another 10% at the end of this year.

They will eventually sell their stakes in a firm, which includes West Bearing Investments, that has grown to $6 billion in assets under management.

There are two ways for employees to become owners at Ferguson Wellman. Firstly, every employee who has worked for the company for five years is given stock worth $10,000.

Beyond that, employees are invited to buy more stock based on their perceived value to the company. Of the firm’s 48 employees, 28 are shareholders and 16 own equity beyond the initial gifted shares.

Of course, not everyone has the financial means to buy shares, so the owners devised a structure to make it viable for employees to purchase equity from the retirees.

The structure works like this: The buyer receives a chunk of the compensation that the retiring employee receives, as well as the their portfolio of clients. The buyer then agrees to pay back the seller for the shares using a portion of the retiree’s compensation over nine years. It is a bit like the buyer taking on a nine-year mortgage.

The retiree agrees to stay on at the firm part-time for two years to help the buyer transition into the role.

Holwerda says the sellers could have made more money by selling to outside investors. But he adds the “seller also gained comfort and confidence about how long-term clients have been dealt with.”


He adds that if the owners had sold to an outsider, they would have been obligated to stay with the firm longer to manage the transition. “An external buyer would say, ‘You have to stick around for five to seven years to make sure it all works.’”

Tara Kinateder joined Ferguson Wellman in 2017 to take over the portfolio-management responsibilities from Jim Rudd, one of the five majority shareholders. She came from U.S. Trust, where she worked as a private client advisor for the firm’s Portland office.

Kinateder owns 2.5% of shares in the company, which will translate in her receiving 2.5% of the firm’s net profit annually after all other operating costs have been paid.

For Kinateder, the opportunity to own shares in the firm was an exciting “hook” in her decision to join the team. It is also one that comes with a lot of responsibility, she says. To be able to pay for the shares, she feels obligated to make sure the firm is doing well financially.

“You really start to have a different feeling about your job,” says Kinateder. “It is where your career is going to be versus being here for a year or two. I was attracted to it: You know that all of us are pulling an oar together.”

Transferring ownership comes with challenges. The sellers put trust in the buyers to be able to pay them back. That means they have to spend a lot of time hiring people they have confidence in and who have the ability to take over their ownership.

For the sellers, it is a big leap of faith because this is their retirement they are banking on.

“The current owners are not going to get paid for nine years. They have to really believe this will work or they won’t get paid,” says Holwerda. “It’s like a mortgage. When the lender lends you money to buy your house, if you don’t pay the mortgage, you lose your house. If this company doesn’t go forward, the seller gets nothing,” he adds.

The fact that not all employees are invited to buy extra stock could also have a negative impact on morale. Each employee knows how much stock everyone owns. “When we go through that, it can be hard to see how you are valued and ranked,” says Mary Faulkner, senior vice president of branding and communications.

It is particularly hard for employees in the financial advisory sector, where egos are prevalent. This is why it is important to create a supportive corporate culture where employees feel they are valued members of the team, she cautions. “If we don’t have synergy as a team, this can become corrosive in terms of the ranking and valuing of people,” says Faulkner.

Rosen at the National Center for Employee Ownership says setting up a structure where employees buy shares, rather than gifting shares to all employees through an employee stock ownership plan (ESOP), can be “tricky” to manage.

“Most people are not in a position to buy shares. If you really want everyone to be involved, the shares have to be free,” he says.

Rosen adds the firm’s pledge to give $10,000 worth of shares to employees after five years of service “helps” to offset any bad feeling among staff.

Managing the transition to broader employee ownership required some internal management changes. The firm provided more clarity on employees’ responsibilities and their decision-making authority. “There is no question there is a broader voice because of having meaningful owners than there would be if we were owned by one person,” says Holwerda.

The firm also increased transparency over the company’s financials. An employee owner, no matter how small their equity is, has the right to see the firm’s financial results.

The transition to broader employee ownership also gives the firm an opportunity to broaden the diversity of its workforce. As it hired more people to take on ownership roles, it presented the firm with the opportunity to hire more women, for example. Approximately 30% of the employees who own stock beyond the initial gifted shares are women.

“This industry is dominated by men, and the commitment by us to find a more gender-diverse workforce at a leadership level, we thought would be better for us and clients,” says Holwerda.

Indeed, the transfer of wealth from the baby-boomer generation to their offspring means wealth-management firms need to diversify their workforces by necessity. Those inheriting wealth are younger and more diverse, and may not be so willing to work with advisors who do not look like they do.

According to Deloitte’s ‘10 Disruptive Trends in Wealth Management’ report, the growing wave of baby boomers preparing to retire will lead to the largest transfer of wealth in history. Between 2007 and 2061, $58 trillion is expected to transfer from one generation to the next.

Historically, most heirs have changed wealth advisors when they inherit money and assets. “Firms must meet this by building multigenerational relationships with their clients and their families,” say the report’s authors.

The firm’s clients appreciate the greater sense of teamwork that comes with employee ownership, says Faulkner. A survey the firm did in 2011 found that clients were more likely to refer someone if they knew at least three people at the firm.

“That notion — that you have a relationship with a team, not just the individual — is really powerful to the client,” says Faulkner.

For 29-year-old employee Jones, the culture that comes with employee ownership is a welcome change to the cutthroat work environment of the traditional brokerage model. In that culture, employees work in silos and compete against each other to make the most money. Nepotism is also common.

“People cheer each other on more,” says Jones of his experience working at Ferguson Wellman, adding that the business that one colleague brings in benefits the whole team, not just that individual.

“That creates a natural synergy here. It is rare in our industry. In the traditional brokerage model, it is still very much, ‘You eat what you kill.’”

This article has been edited to change the name of a director who was part of a cohort in 1997 that bought shares from the then-owners. The director is Mark Kralj. It was incorrectly reported that one of the directors was Ralph Cole. 

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