While a number of things were discussed, the underlying theme of our conversation was the need to perform due diligence to identify the best option for an adviser's practice.
Advisers ready to make a move should consider the following:
The Value of Your Practice
Defining the value of your practice should be simple: How much is a buyer willing to pay and at what price are you willing to sell your business? To encourage the best valuation possible, I urge advisers to focus on driving more recurring revenue. By deepening relationships with clients and offering fiduciary services, your current client base is much more likely to refer your practice to others and strengthen your revenue stream. This type of recurring revenue often carries a higher multiple with prospective buyers.
Buyer Wants and Seller Needs
While practices with recurring revenue streams tend to stand out the most, both sellers and potential buyers need to evaluate the clientele of an individual practice. Buyers should take the time to learn the typical client profile and determine if this is a segment of the market they are comfortable serving. It is also important for sellers to go through the interview process with prospective buyers to find an affiliation positioned to help an adviser realize the ultimate vision for his or her practice.
As Kevin Beard of AIG Adviser Group said, “It's not just about the next five, 10, 15 or 20 years” but about the legacy you may also wish to leave behind.
Is the Offer a Good Deal?
Interviewing multiple firms takes time. While a third-party site such as The Adviser Center is useful in narrowing down your list of options, aggressive due diligence must take place. Once an offer has been made, examine the other side of the contract. Find out how this prospective firm makes its money. Does it manufacture and distribute its own products? Is there room for adviser objectivity? If the answer is no, advisers must decide how they feel about being put in that position. Ultimately, it is up to the adviser to determine if the seemingly “good” deal allows for the ability to be unbiased when serving clients and decide how much weight that ability holds.
Many advisers see the option of changing affiliations as costly and time consuming. But a time comes for many when the cost of staying outweighs the cost of moving. If that is the case, take the proper measures to ensure the choices in front of you will be the best fit for your business for the long haul.
Tom Daley is the founder and chief executive of The Advisor Center, a strategic partner to InvestmentNews and The InvestmentNews Career Center.
