What to know about selling your consulting firm in 2021 | Financial advisors

Financial advisers are considering sell their businesses need to ensure there is a cultural fit, so the transition is effortless.

Since there are often more buyers than sellers, financial advisers should ensure that their due diligence includes examining how the acquiring company conducts business. While sellers can often attract higher prices in these market conditions, advisors “really have to make sure there’s a good crop, even if it’s not the highest bid price. high,” said John Anderson, managing director of SEI, an Oaks, a Pennsylvania-based financial services advisory firm.

Most acquisitions include a window where the seller is responsible for a smooth transition, he says.

Cultural adjustments are important

Advisors selling their business should ask themselves if they see themselves working with the buyer for a year or two, if the level of commitment to clients is the same, and if other employees will be treated fairly.

“It’s important to success that everyone — the buyer and the seller — is culturally appropriate, especially if the sale is seller-financed,” Anderson says.

Daren Blonski, managing director of Sonoma Wealth Advisors in California, also says cultural fit is an important factor.

“The first thing I look for is if the advisor is a good fit with my way of doing business and making sure there’s alignment with business practices, like not selling high-fee products like annuities,” he says.

Another critical factor is to ensure that the advisor selling their business is ready to let go of the reins of the business.

“A lot of advisers want the revenue from the sale of their business, but aren’t willing to get out of operations,” says Blonski, whose deal fell through because the adviser wasn’t ready to retire. “There must be an open dialogue between the seller and the buyer on the respective role of each party.”

Financial advisors It’s not just about looking for a similar investment approach and strategy, but also having open, clear and candid conversations,” he says. “If the clarity is not there, you will encounter obstacles.

Other Factors That May Affect a Transaction

Anthony Conte, managing partner at Conte Wealth Advisors in Camp Hill, Pennsylvania and Fort Myers, Fla., which has 21 advisers in nine offices across four states, is looking for systematized practices.

“Does the practice still work without you?” he says. “Build a process to create a practice that exists without you.”

The advisor’s business processes must be written down and accessible so that another person can work with the existing process or rebuild it. A good potential acquisition target is a company that is planning for the future.

“I want to buy a practice that has been planning for a while,” says Conte. “For the number of practice owners I have spoken with, too few have spent time documenting the work they have done and what they are doing for the next generation. I want to buy a practice that is durable. “

Advisors face four options when considering selling their business, says Rob Francais, CEO of Los Angeles-based Aspiriant.

  • Transfer ownership to existing partners, junior advisors or family members.
  • Selling to a financial or strategic buyer, including private equity.
  • Selling to another registered investment adviser, asset manager or financial advisory firm for cash.
  • Merge with a like-minded company and create a transition strategy based on a stock merger and selling to the next generation.

Before an advisor sells a business, understand what factors are critical to you and your partners — maximizing the price of the business is important, but integrating two businesses is also vital, he says.

“Clarity of your ultimate exit strategy will help you run your business more effectively,” says Francais. “Decide if you’re ready to give up control since loss of control is a big hurdle in our industry.”

Waiting too long to sell your financial planning the business can be detrimental as advisors and their clients age.

“The longer an advisor waits to sell a business, the more the value of the business can deteriorate,” he says.

Why conducting an assessment is important

The first rule for advisers looking to sell their practice is to have a formal valuation done and agree on that value before continuing conversations with buyers, says Alex Chalekian, CEO of Lake Avenue Financial in Pasadena, Calif. .

“After an advisor has had a career of 20 to 30 years, it’s true that they seek to maximize the sale price of their practice as they consider leaving the industry,” he says. “But many buyers are aware of a sales consultant who is either looking to sell at the highest price or create a bidding war. Often this is a red flag that the sales consultant is more concerned with the money they will receive on the sale, instead of focusing on finding the right home for their clients. This can lead to problems during the transition period and should be avoided.”

Many companies are acquiring financial advisory firms due to the current market environment – lower interest rates and tax rates will increase merger and acquisition activity, says Stuart Silverman, president of Bluespring Wealth Partners, an Austin, Texas-based financial advisor advisory firm.

“There are a lot of buyers, and it’s almost a perfect storm,” he says. “It’s been a trend for many years, and there has been an increasing number of acquisitions over the past 10 years due to an aging population.”

There was a significant number of transactions in 2020, although transactions were halted during the second quarter.

“We saw another banner year in 2020, and the momentum continues into 2021,” Silverman says. “This was a wake-up call for many older advisers – trades are moving faster now, with high trading multiples, and companies selling at a premium.”

Whether advisors make a traditional sale and walk away from the business entirely or a partial sale to a junior advisor at his firm, selling a business is an “exhausting and emotional process,” says Mark Kowalsky, a financial services industry partner at Jaffe Raitt Heuer & Weiss, a law firm in Southfield, Michigan.

“My clients are experts in the financial advisory business, and they don’t have the expertise to sell and walk away from that business,” he says. “There is also an emotional element. It’s hard to let go.”

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