Based on the numbers, finding a prospective buyer for a financial advisor’s book of business shouldn’t be all that difficult. Today, there are fifty buyers out there for every seller. Those numbers sound good, but financial advisors look for quality, not quantity.

Your book of business is not a retail product to be sold to the highest bidder. It’s a list of clients that you have a fiduciary responsibility to. That doesn’t change when you sell the business or retire. Transitioning is about finding a buyer who will properly service your clients.

In addition to adhering to your fiduciary standards of client care, the buyer also needs to be willing to meet your price. That willingness will be based largely on how you handle the sale. In this article, we’ll discuss how to find a buyer for a financial advisor’s book of business. We’ll go over timing, buyer options, and the value proposition for the buyer.

Determining the Right Time to Sell Your Practice

Assuming the same aum and number of clients, a business in decline is not worth as much as a business that is growing. If you sell your book of business when revenue is shrinking, it sends a signal to buyers that you’re desperate. That’s not a good position to negotiate from.

For a growing practice, or even one that is maintaining a stable revenue stream, the sale needs to be planned well in advance and promoted as a sound business decision, not a move of desperation. This makes a significant difference in calculating a sale price.

On average, most advisory practices are getting 2- to 3-times annual recurring revenue when they sell their book of business. Those numbers are based on gross revenue. The larger the practice, the greater the opportunity for a greater price. However, larger practices will almost always use an EBITDA (earnings before interest, taxes, depreciation and amortization) multiplier. This number can equate to 4- to 6-times EBITDA or more and deals for larger firms can even be over 10 times EBITDA. Is that enough for you to walk away right now?

If you’re not quite ready to retire, you can still sell your book of business and maintain a semi-active role with the buyer’s firm, if they’re open to it. This is actually quite common, and it helps with the client transition, ensuring that your fiduciary standards are met.

Internal Asset Transfers versus External Buyers

One way to make sure the level of client care is maintained is to transfer client assets under management to another advisor in your firm. Many financial advisors, as they grow older and near retirement, look for junior advisors they can train to take over the business.

This is a more long-term approach and doesn’t necessarily result in an actual “sale” of a book of business. It’s more of a transition concern, with profits coming on the back end, not up-front like in a traditional sale. The exact numbers can be negotiated by the parties involved.

Internal asset transfers are simpler from an operational perspective, but the payout for selling to an external buyer has a higher potential upside and can generate a lump sum payment. Internal transfers typically result in a percentage of revenue paid over a period of time.

Too frequently, advisors are looking too late to find an internal succession. For those that don’t have one in place, looking for one too late is likely more risky than a seller recognizes.

Presenting a Value Proposition and Discussing Overhead

There are many elements that make up the value of an advisory practice. One important factor is the strength of client relationships. This will be examined closely by the buyer of a financial advisor’s book of business, because the trust level of your clients will determine how smooth the transition will be.

Another element in this equation is the overhead of the firm. In some cases, advisors are only selling their book of business, with no overhead. In others, the buyer is taking on the entire infrastructure. Are there expenses and costs that can be eliminated or cut back?

Each of these points is a “lever” in negotiating the sale. Strong client relations are a justification for a higher price. Excessive overhead may require a concession from the seller. Having a plan for the buyer to cut that overhead should be part of your value proposition.

Cultural and Personal Dynamics

Cultural fit is a necessity for many buyers and sellers. You don’t want to sell your book of business to someone who doesn’t share your values. That would be detrimental to your clients. As for a personal dynamic, it’s best that you get along with the buyer, but not completely integral to the deal.

Selling a financial advisor book of business is an emotional exercise that can often cause resentments between seller and buyer. For that reason, among others, its recommended that you have a third party handle the actual sale negotiations. That will take the “personal” factor out of the equation.

If you need assistance, contact Bridgemark Strategies. Our team has experience in finding buyers and connecting them to sellers of financial advisor books of business. We can also help you create a succession plan or work toward a merger or acquisition.

Get Help Selling Your Business

Selling your practice should be done with a plan that is implemented years prior to when you want to exit the business. Start today. Bridgemark Strategies can help you position yourself to get maximum value for your practice when the time comes. Call us today to learn more.

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