Critical Pieces to Have in Place to Sell Your Financial Advisory Practice

Expect to see significant mergers and acquisitions in the Financial Services industry in the next few years. We have an aging advisor population who are looking for exit strategies and need to do serious succession planning. Financial Advisory C-Suite decision-makers gathered recently at The Deal and Dealmakers Summit by Echelon Partners to meet mergers and acquisition experts, design strategy, and optimize their deal-making. They stressed that to sell a financial practice, you need to have your business act together. This article discusses the critical areas to focus on to create high value and make the best deal.

Critical Pieces to Have in Place to Sell Your Financial Advisory Practice

To sell your financial advisory firm, you need to have the following critical pieces in place to get a deal that truly inspires you.

  1. Organic growth for at least a 3-year period
  2. A detailed and proven prospect enrollment process
  3. Client onboarding and ongoing servicing system that yields happy long-term clients
  4. Documentation of your repeatable processes
  5. A marketing plan, tracking system, and accountability structure (for ensuring implementation)
  6. Positive team culture
  7. Simple buyout deal/plan

1. Organic Growth

Businesses that have the most organic growth are the most valuable. A firm is most appealing when it has a track record of attracting a consistent increase of AUM year over year. You’ll need to show the numbers both in AUM and of clients.

Organic growth is often one of the least planned elements of an advisor’s business. You can create organic growth when you have a system in place that identifies and targets your ideal prospect, several channels, and consistent marketing activities to attract and close those prospects.  Focus on creating a positive prospect and client experience.  Tough market times offer advisors a great opportunity to stand out when they have a proven track record of weathering these markets and continuing to serve clients at the highest level.

2. Prospect Enrollment Process

You could be great at meeting new prospects, but to sell your business you need a track record of consistently converting prospects into clients. The Financial Advisor Success Training offers a template that increases closing ratios. With a great reputation for bringing on new clients, your firm will be attractive to investors.

3. Client onboarding and ongoing servicing system that yields happy long-term clients

How do you stand out and instill confidence in your clients? Having a seamless onboarding process and ongoing servicing practices remind them how valuable you are.  Having these pieces in place will improve retention and make your business more saleable.

4. Documentation of your repeatable processes

Every business needs to have documented Standard Operating Procedures (SOP). Even if you’re a small firm with one assistant, everything that your assistant does should be written down in a step-by-step procedure guide. They can be a series of MS Word or Google docs. Having procedures documented ensures that your staff knows their responsibilities and should someone suddenly leave the practice, someone else could easily step in and take over the job. This also means that every person currently working in your practice needs to keep their SOPs up to date.

5. A marketing plan, tracking system, and accountability structure (for ensuring implementation)

According to Milton Berlinski, co-founder and managing partner at Reverence Capital Partners, “If you’re not moving forward, you’re moving backward.” To move forward, have a strategy.

Professionalizing the firm with systems is your best strategy.

If you fail to plan how you’re going to grow your business, you are headed for a slow decline. Mapping out a marketing plan, and ensuring it gets implemented with a tracking system and accountability structure will give you the best odds of success over the next year. Don’t fall into the trap of not having enough time to market. Otherwise, your business growth will stagnate. Stagnation is never good if you want to strike a good deal for your business.

Marketing never happens in a vacuum. If you don’t know how to create a marketing plan, learn from a professional business development expert.

6. Positive team culture

The most common way to incentivize is to take great care of your people. Pay them well. Appreciate them. Provide perks and most of all, listen to them.

Take stock of your team culture.  Do you and your team get along well? Frequently, advisors keep team members because they’ve been there a long time. If they are the source of poor morale among other team members or clients, they need to be retrained or let go. You cannot afford to have a team that doesn’t work well together.

7. Simple buyout deal/plan

When structuring a buyout deal or plan, make it simple. The more complicated the earnout program, the more demotivating the deal is.

Keep in mind the following drivers that are taken into account to come up with the buyout number.

Valuation Drivers for Sale, Mergers, and Tuck-Ins

  1. Growth and Scale
  2. Employee Management
  3. Client Management
  4. Firm Management
  5. Financial Management
  6. Business Model
  7. Transferability
  8. Marketing
  9. Productivity
  10. Economics

Why Invest In Your Business Before Making A Deal

The bottom line to draw the most profitable price for your business, you must show that you have invested in your business. Furthermore, showing results from what you’ve invested in the form of the number of clients you have, the longevity of your clients, systems that create a positive team environment, and lots of satisfied clients who refer more people to you.

How To Land A Great Deal

Whether you want to merge your business into a larger firm or exit, you need a healthy growing business and a plan. Growing firms are looking to expand rapidly as the population of financial advisors who are approaching retirement is significant. They are actively recruiting new advisors and looking to buy businesses from experienced planners. Put in place the seven critical pieces above and you’ll be positioned for success.

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