From a philosophical perspective, one of the most important qualities in an advisor is in having a mindset that says "My goal is not to see how big I can get, but rather how small I can stay." That sounds like a contradiction from a buyer’s perspective. Why else would someone want to buy a business other than to grow, rather than do it methodically and organically? It's still a great idea to accelerate growth through acquisition but the focal point should be on the quality of the clients, not the quantity. An advisor who was disciplined in only attracting advisors who were a good fit rather than accepting anyone with a pulse, is the ideal advisor to purchase a business from. The same holds true in terms of selling a business to an advisor with a similar mindset because ultimately you know your clients will be transitioned and on-boarded professionally and will enjoy a very soft landing thus ensuring the sellers legacy in the process.
Consistency is Crucial
Advisors who tend to consistently attract the same type of clients in terms of average asset size and other commonalities is another item on the ideal alignment checklist. The average size of the client and the platform they are on, is more important than the overall amount of AUM the selling advisor has.
Within the Same Firm
For a variety of reasons it is also a good idea to align with an advisor within the firm you are with. That's not to say that there can't be exceptions, but the clients have a degree of comfort and familiarity with the firm's systems and procedures, and fewer disruptions in terms of trust, optics and deliverables contributes to the clients’ confidence in the transition.
Maverick Talent vs. Documented Procedures
The ideal business to acquire, and the ideal advisor to sell your business to, share a common thread in terms of a good fit: they operate a business on a foundation of best practices. The business is not in their heads, it is documented in a playbook. There is an allocation of time that is tied to client classification and a service matrix. Compliance history is solid because clients are receiving proactive and reactive service that is consistent. The advisor uses a CRM that ensures that relationship history is archived and KYC (Know Your Client) is accessible easily.
How Did They Start Relationships?
The ideal financial services professional uses a fit a process rather than a sales process. He or she doesn't try to convince someone to become a client, he or she establishes an alignment between the person’s needs and the advisor’s solutions. Their clients are enlightened and in synch with the advisor’s mindset about wealth management. Other questions as part of the dual-track due-diligence process are:
- What is the client acquisition history in terms referral genealogy?
- What percentage of their clients were referred from the 20% who generate 80% of the business vs. From the 80% who generate just 20% of the business?
- What percentage of their business was organically acquired vs. absorbed from within the branch or acquired by purchase?
- Were cold-calling, mass marketing and seminars used to acquire clients?
- What percentage of their clients are actually partial customers who dabble with other providers vs. fully empowering clients?
- What is their process to communicate their services professionally to consistently attract new money as it goes into motion?
- Do they have meaningful "two-way street" relationships with accountants, lawyers and other partners?
Fees vs. Commissions
Many people have oversimplified this by saying that the best business to buy is one that consists of clients who have bought-in to a fee-based compensation model. What it really comes down to is the degree of communication the advisor has used and their consistency to ensure the clients are competitor proofed making them either fee-worthy or commission worthy. Whether they receive commissions for advice, or fees for management, is secondary. The bottom line is there will be more sellers than buyers and consequently there will be many fee-based businesses for sale in the future and not all of them will be worth acquiring.
Entering the Retirement or Acquisition Red-Zone
Whenever we coach an advisor on performing solid due-diligence on a potential buyer or seller, a common response is as follows: "This sounds like work!" And it is, but use the potential of a multiplied ROI as the beacon that helps you see past the hurdles and noise that will try to conspire against you. Much of the value of the business you are trying to acquire or sell is intangible and abstract especially if it isn't defined or documented. Get out in front of the process, get your intellectual properties out of your head, and subscribe to the maxim that says "Done is Better than Perfect." As I've said before - and contrary to the old cliche - time is NOT money! Your time is more valuable than money because once it's spent you can't earn it back. Invest your time in a process and put the odds in your favor. We've seen first-hand where an advisor invested 6 to 12 months of sweat equity into the business to position it to be sold and then multiplied their outcome meaningfully. We've also seen how a well prepared acquisition and methodical transition multiplied the profitability of the combined practice measurably as well. Either way, deploy a process and execute with precision and you will unlock more value.
Contributed by Duncan MacPherson