If you want to sell a car quickly, put it on eBay at no reserve. Remember to add “as is” to the description and remind buyers that it’s “cash only.” I guarantee the car will be gone from your driveway within a week.
Almost anything can be sold quickly by a motivated seller. But selling something precious, complex and unique to the right buyer usually takes much longer.
Let’s face it — we’re in a seller’s market for financial planning practices. Demand is at all-time highs and multiples are rising to nosebleed heights. Does that mean a “for sale” sign is enough for advisers to make a quick exit on their own terms? While someone can certainly hand off the bottom 20% of their book to a B-D colleague without so much as an email to those clients, larger clients and long-term relationships need to be carefully handled to avoid poor execution, attrition and certainly hurt feelings.
Enterprise RIAs have consultants and MBAs to help them with their transitions. Small and midsize advisers looking to roll up or retire often choose to go it alone. Unfortunately, because selling a practice is a once-in-a-lifetime event for these advisers, that independent streak could lead to problematic execution.
Those with the benefit of experience will agree that the biggest blind spot for advisers looking to transition a business in the $50 million to $150 million range is an underappreciation of the sheer number of things that need to happen. Consider the to-do list below as the bare minimum it takes to find a buyer and close a deal:
1. Evaluate the local adviser landscape.
2. Develop a plan for identifying and evaluating candidates.
3. Conduct a valuation.
4. Communicate and market the practice.
5. Interview candidates.
6. Negotiate deal terms.
7. Create and implement legal agreements.
8. Transition data and systems.
9. Inform clients.
10. Introduce the new adviser.
11. Conduct one to two client meetings with the new adviser.
Each of these steps could take weeks or months. Even if you shortcut steps one through seven and find your successor via the eBay auction model, you’ll still need at least six months to create a positive experience for all stakeholders.
But taking shortcuts in any of these steps could result in finding a buyer who is not a good fit for your clients. Or, if the transition is abrupt, the buyer could be left holding the bag for the not-so-great client experience.
Often clients don’t spend much time thinking about the possibility that their adviser will retire. If they get a letter out of the blue announcing that a new person will now be looking after their family’s financial life, it can be quite a shock. That shock may not blow back on the selling adviser, who has decades of goodwill with these clients. Rather, the purchasing adviser has to make the best of a possibly thorny situation. Clients may have a bad taste left in their mouth and may not be inclined to give the new adviser a chance.
Likewise, there is the simple risk of hurt feelings. No one likes the feeling of being pawned off or “sold,” even if the adviser’s retirement is well earned. If the seller lives in a tight-knit community, she’ll want to be recognized as having left her clients in good hands.
For larger clients, the process needs to be even more collaborative. The deal terms of a practice sale for a book that’s under $100 million sometimes hinges on a small number of high-revenue clients. For these clients, the transition needs to be telegraphed and carefully coordinated. High-revenue clients should be introduced to the new advisers early on and transitioned over several meetings. If these clients are on a quarterly meeting schedule, this process could take six to nine months, or more.
For buyers, everything here works in reverse. Be wary of a seller in a hurry. They may not really have taken the time to think through their retirement plans and are therefore more prone to simply change their minds. Or it could mean the seller will be a less-than-active participant in a thoughtful hand-off process. You may still take the risk of pursuing such a purchase but consider including a success sweetener in the deal terms.
From planning to deal completion to client transition, the process takes time. From both the buyer’s and seller’s perspective, one to two years is ideal. Seek out experts, identify experienced buyers, tread carefully with rushed sellers and leave yourself plenty of time. For buyers, you’ll have years to work through this book so adding a few months as a margin for safety is well worth it. For sellers, it’s invaluable to have a soft landing for your legacy.
Most importantly, clients will benefit from the added thoughtfulness and care, honoring the trust that they’ve placed in the seller and hopefully transferring that trust to the buyer.
Nathan Munits, an immigrant to the U.S., is president of Longwave Financial.
Andrew is half-human, half-gamer. He’s also a science fiction author writing for BleeBot.