4. Revenue streams: Is the book fully serviced?
Seller: A buyer will look for gaps to determine if your book is fully serviced or if there are untapped transactions, outside asset consolidation opportunities, or automated revenue streams such as pre-authorised monthly contributions that offset asset leak. In an environment of fee sensitivity, there’s no doubt buyers also assess the value of a fee-based versus a more transactional practice – and, realistically, question the longevity of products with above average adviser compensation.
Buyer: An “underserved” book presents upside potential through cross-selling, (e.g., insurance products with one-time transaction fees). You might only consider a tapped-out business – where the selling adviser has exhausted these possibilities – at a discount. When it comes to fee-based versus service-based models, the former will factor in among sources of predictable, recurring revenue.
5. Structure: Guru or team player?
Seller: Are you a lone wolf, positioned as a “guru” to your clients, or are you part of a team? In addition to the inherent possibility of internal succession candidates within a team structure, a buyer will look at a number of related considerations, such as brand equity, client loyalty and repeatable/learnable processes.
Buyer: It may be a tougher hurdle to acquire client buy-in if the practice you’re vetting has an adviser at the helm with his/her name on the door, and clients who are, in essence, brand-loyal – solely dependent on the stewardship of one individual. Conversely, if there’s a team, you must also assess if colleagues are autonomous, compatible, and profitable, should staff transition be part of the equation.
6. Market supply/demand characteristics: Are you thinking ahead?
Seller: If you’re thinking of retiring in five years, start planning NOW, and be aware of the impact of market dynamics: by the time you’re ready to transition, your city/region could be flooded with supply; if you’re in a small town (or retirement community), there may be few local buyers; and it’s also possible that, once you make your retirement objectives known, you get a very attractive knock on the door sooner than anticipated. Successful transitions happen when advisers are informed – and ready – early.
Buyer: Geography also plays a significant role in a purchase. If a concentration of a seller’s clients is in another city or area are you willing to commit to travel? If closer to home, but still a commute, will you relocate or factor in more time on the road? Another possibility exists: the book gets divided and you acquire only the portion that appeals to you, leaving the rest for a buyer in the market that’s foreign to you.
7. And finally: where do you start?
- You do succession planning for your clients; run yourself through the same process, so you have an actionable blueprint
- Make your desires known, as appropriate, to your network or service provider, as they may be able to broker a deal between like-minded advisers/firms
- Some dealer firms compensate for onboarding assets now that may be sold to another adviser in the future, so if transitioning is already on your radar, you should investigate opportunities to get paid twice
- Determine what you can successfully onboard based on your current infrastructure – and what you want those assets to look like
- Consider approaching your dealer firm to discuss financing options. If you’re doing this independently, research other resources
- Ensure a strong non-compete to prevent the seller from later re-entering the market, and approaching your newly acquired clients