Selling Your Financial Advisor Business

More than 100,000 financial advisors will be retiring in the coming decade. Are you one of them? If you have considered selling your advisory practice, the team at Bridgemark Strategies should be your first call.

Selling or merging your business is not something that happens overnight. Understanding the value of your business is only one small element of the deal. Here at Bridgemark Strategies, we can help you with the creation and execution of an effective plan.

When Should You Sell Your Practice?

The real question is when should you begin planning to sell or merge your business? Timing is everything. Business valuations are based on profitability and growth rate. The best time to sell or merge your practice is when you have the proper amount of time to find a buyer and ensure a smooth transition, which can take years. Practices that choose to sell too late are more at risk of getting a reduced price.

Or Should You Merge Your Practice With Another?

Merging your business with another firm or a larger PE backed firm can solve a lot of challenges for financial advisors. It can provide a monetization event which can de-risk the business as well as increase overall growth rate for the financial advisor – merging with another firm can also create a new set of problems.

When it comes to merging businesses, aligning each party’s Feel, Fit and Financials® is imperative. Partner with the experts at Bridgemark Strategies to ensure your interests – and those of your clients – remain front and center throughout the due diligence and negotiation process.

A Seller’s Market

For advisors, business valuation multiples have also grown from nothing (back when an advisor would just retire), up to 15x EBITDA… or more.

Over the last decade, the amount of money advisors can get for their business has risen astronomically thanks in large part to the increased presence of private equity and the growth of mega-aggregators.

How PRICE is Determined

Five elements consistently come into play during the dealmaking process when determining the price of an advisor’s business. We’ve created an acronym to help everyone remember them: PRICE.

People Revenue Increase Y-O-Y Clients EBITA

It’s been said something is worth what someone is willing to pay for it. While supply/demand metrics do impact every negotiation process, there are other significant forces at work when valuing an advisory business … five of them to be precise. These five key attributes consistently come to the forefront when determining the price of an advisor’s business. I discuss them below.

PEOPLE

Who is driving success? What are their skills, and what are their values? Having a great NextGen advisor on the team will increase a seller’s price point. Not having one lowers it.

REVENUE

What is the firm’s revenue sources … and what is the mix? Fee-based revenue is king. Too much commission business will negatively impact a buyer’s interest and the price they are willing to pay.

INCREASE Y-O-Y

If a firm is not growing – especially net of the market – some buyers will not be interested. Sellers must be careful not to wait too long to enter the market. Marketability – and price – drops when business growth plateaus.

CLIENTS

Are there a few very large clients? Are there a lot of small clients? What percentage of clients are high-net-worth? Single buyers don’t want to take on too many clients … 200 solid clients are better than 1,000 middling ones.

EBITA

EBITA (Earnings Before Interest, Taxes, Depreciation and Amortization) drives price. Two businesses with almost identical features often won’t have the same EBITA. EBITA is what buyers buy: the higher the EBITA, the higher the price paid.

Importance of a Plan

How can advisors take advantage of today’s all-time high valuations? Our experience has been advisors in their fifties or even in their forties have begun implementing their monetization and succession plan by selling and merging their practice. This strategy can increase the value of overall business and enhance the service you provide your clients, while increasing value creation for the advisor. Still, tens of thousands of financial advisors planning to exit their businesses do not have a succession plan.

Two people shaking hands: how to find a successor

Maximize Value & Protect Your Clients

If want to explore a strategy to maximize the value of your business, protect your team and make sure your clients are taken care of, then you should consider selling or merging to the right strategic partner.

DID YOU KNOW…

Our experienced consultants can offer you key insights throughout the sale process. Here are just a few things you should know when selling your financial advisor practice:

Selling a financial advisor business doesn’t necessarily mean you’re retiring. Advisors often step back to develop a lifestyle practice or join the investment committee of the buyer’s firm.

In the past, sellers would get 10 to 30% as a down payment and have to finance the rest on time payments. Today, banks are willing to finance up to 100%, giving the seller a faster payout. Additionally, many of the buyers are backed by private equity firms with deep pockets to finance transactions.

When a deal is structured properly, sellers who have owned their practice more than one year may be able to claim the sales proceeds as capital gains, thus leaving them with lower tax liability.

Often buyers will discount or even walk away with no interest for financial advisor practices that solely focus on asset management. financial planning is the key driver to gauge buyer interest and increase valuation.

Buyers prefer financial advisory teams with junior advisors to take care of the clients. Often, buyers will provide additional incentives to incentivize and motivate junior advisors.

Increasingly more strategic buyers have created a deal structure that will maximize price for the financial advisor while also providing favorable tax treatment as a capital gains transaction.

Let’s Get Started

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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