Cap Tables for Advisory Firms Whose Own People Hold Client Equity

When you bring on a new fractional executive as an equity partner in the advisory firm itself, that's a standard cap table event: a grant, a vesting schedule, and, if you're granting options, a 409A valuation, all tracked the way any small company would track them. Keep this record entirely separate from the equity individual advisors accumulate at their client engagements, since those stakes belong to the advisor personally, not the firm, in most fee structures.

Mixing the two creates real confusion during a firm-level ownership event, like bringing on a new managing partner, since nobody should be negotiating over equity the firm doesn't actually hold.

An advisor working with four or five client companies simultaneously, some paying in a reduced-cash-plus-equity arrangement, can end up holding a real portfolio of small, illiquid stakes without a single place to see them together. Encourage advisors to keep their own simple record of every client equity grant, its vesting status, and any exercise deadlines, separate from whatever cap table software each individual client company happens to use.

This is a personal-portfolio problem more than a firm-level one, but a firm that helps advisors stay organized here reduces the odds of someone losing real equity to a missed exercise window at a client that's moved on.

When the advisory firm itself grants equity to a new partner, the mechanics are usually a vesting schedule and a signed grant agreement, plus a 409A valuation if you're granting options; if the firm is a partnership or LLC, have your CPA confirm how the grant is valued and taxed. What differs from a typical startup is the firm's revenue often comes from a portfolio of client retainers rather than a single product, so model dilution against realistic retainer-revenue projections rather than a hockey-stick growth curve borrowed from a different kind of business.

Both Pulley and Carta handle this scenario the same way they would for any small, profitable services company.

Because advisors personally hold equity in client companies, most well-run advisory firms require disclosure of those stakes so the firm can watch for situations where an advisor's personal equity might color the advice they're giving, particularly around any recommendation that touches valuation, financing, or a potential sale. Build this disclosure into onboarding for every advisor, and review it periodically as new client engagements start.

Neither Pulley nor Carta manages this disclosure process; it belongs in the firm's own internal compliance process, tracked alongside, not inside, whatever cap table tool the firm uses for its own equity.

For a newer advisory firm formalizing its first few partner grants, compare Pulley's and Carta's current setup effort, 409A pricing and turnaround times; neither requires outside investors. If the firm has taken growth capital or is being courted by a larger advisory platform for a roll-up, Carta's format is more likely to match what that buyer's team already expects.

Either way, keep the decision scoped to the firm's own equity. It has no bearing on how any individual advisor should track their personal client-side stakes.

Write a short policy covering whether advisors are permitted to accept client equity at all, any cap on how much of a client's stake an individual advisor can hold, and the disclosure timeline once an advisor accepts one. Having this in place before your next advisor joins avoids an awkward, ad-hoc negotiation every time a client proposes an equity-for-discount arrangement.

Review the policy annually as the firm grows, since what worked with three advisors managing a handful of client relationships each may need tightening once the firm has a dozen advisors across dozens of engagements. Put the policy in writing and include it in onboarding materials so no advisor can later claim they didn't know the rule existed, and revisit it whenever the firm signs a client whose engagement structure looks meaningfully different from the ones the policy was originally written for.

A short client equity policy should cover:

• Whether advisors may accept client equity at all, settled before the next advisor joins so each offer isn't negotiated ad hoc.
• Any cap on how much of a single client's stake an individual advisor can hold.
• The disclosure timeline that starts once an advisor accepts a client stake, so conflicts can be watched from the beginning.
• A requirement that advisors keep their own record of client grants, vesting status, and exercise deadlines, separate from the firm's cap table.