Buying or selling a book? 7 essential tips from the field

As a seller, how do you maximise the value of your book? And as a buyer, how do you assess the right fit?

February 2021

Richard Poulin

Director, Intermediary Distribution, Niagara

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Risk Disclaimer

The information, opinions, estimates or forecasts contained in this article were obtained from sources reasonably believed to be reliable and are subject to change at any time. It has been produced for information only.
Views and opinions are those of the author and do not necessarily reflect those of BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned. No action must be taken or refrained from being taken based on this content alone.

Key takeaways:

  • As a seller, understand how to maximise the value of your client bank from a potential purchaser
  • As a buyer, identify key considerations to establish if the purchase of a client bank is a good fit for your business
  • Understand some of the key steps for both sellers and buyers to facilitate a smooth transition of a client bank

As a seller, how do you maximise the value of your book? And as a buyer, how do you assess the right fit? Rich Poulin, a seasoned professional, discusses the success stories, and the cautionary tales, advisers are talking about.

 

1. Client demographics: Are client buckets balanced?

Seller: It’s important to have a good handle on your book, and the breakdown between the four main client categories: pre-retirees (age 40-60); young professionals (also known as future high-net-worth clients); retirees; and small business owners. We’ve seen advisers aim for about 50-60% retirees, offset by the balance. If that’s not the case for you, it may be time to shift your business in order to shape a more attractive asset for buyers.

Buyer: Though older clients may have larger asset bases, common sense dictates that buyers will gravitate toward a practice that’s skewed toward younger clients – in the accumulation phase – rather than on retirees decumulating assets. That said, a multi-generational book can be well positioned to offset “asset leak.”

 

2. Account size: How sticky are the assets?

Seller: The trend is that the bar is going up in terms of overall asset value per client – with some dealer firms now imposing mandated minimum household levels. All factors being equal, a higher average client size will drive up value – but be prepared for a buyer to want you to stick around while they get fully entrenched with your most lucrative accounts. There’s no prescribed time period; it’ll be dependent on the complexity of your book.

Buyer: A practice with fewer, bigger clients is a double-edged sword: it’s infinitely more attractive, rewarding and feasible – from a time management perspective – to fully service. The risk, of course, is greater dependence on fewer accounts. As suggested above, buyers mitigate the risk of a more concentrated business with a longer buyout/phase-out period.

Seller: be prepared for a buyer to want you to stick around while they get fully entrenched with your most lucrative accounts.

3. Style fit: Made-to-measure or off-the-peg?

Seller: With a prospective deal, consider commonalities of style, strategy, and client service ethics; it’s in your best interest to ensure a smooth and successful transition in which clients receive the experience they’ve come to know – and expect – with minimal disruption. A buyer may see extra value where they don’t have to spend time and effort to educate clients about a new approach/strategy, and potentially remodel portfolios right off the hop.

Buyer: Assessing the right fit is critical. Does your overall skillset or niche match the business you’re buying? For example, does the seller use an outsourced approach to focus his/her time on more holistic wealth planning… whereas your offering is skewed toward highly skilled stock selection? If so, a great book of outsourced solutions will not be tailored to your attributes and a large portion of the book you are buying may not stick around for long.

Buyer: does your overall skillset or niche match the business you’re buying?

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?

Sellers:

  • 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

 

Buyers:

  • 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

Risk Disclaimer

The information, opinions, estimates or forecasts contained in this article were obtained from sources reasonably believed to be reliable and are subject to change at any time. It has been produced for information only.
Views and opinions are those of the author and do not necessarily reflect those of BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned. No action must be taken or refrained from being taken based on this content alone.

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