Asking for referrals: pick up the phone

Buying a book of business is an enormous undertaking. It takes time, meticulous planning and due diligence to lock down a deal that will boost the viability of your practice.

“Asset gathering is not a sprint, it’s a marathon,” says Evan Thompson, business coach and founder of Evan Thompson and Associates in Toronto.

The key to successfully acquiring a book of business is to not only find a roster of clients that suits your business goals, but to demonstrate to the seller that you are the right financial advisor to take over those clients. If you can credibly position yourself as capable of acquiring and managing new business, it will be easier to persuade the seller to entrust you with their clients.

But before you begin shopping for a book of business, ask yourself the following questions to help determine whether you are ready to significantly increase the size of your business:

1. Do I have the capacity to absorb a new roster of clients?
To seamlessly integrate new clients into your practice, your support staff should have the ability to attend to everyone, says Jerry Butler, president of Queenston Group in Winnipeg.

Apart from hiring new staff, you might also have to upgrade your office space or technology. You don’t want to meet with clients in cramped quarters or have an inadequate client-relationship management system with limited storage.

If you don’t currently have the infrastructure in place, Butler says, find out whether you can acquire it through the acquisition. If the groundwork is not in place, you risk losing the new clients and alienating your core clients.

2. Who are my existing the clients?
Unless you have a firm foundation of loyal clients, Thompson says, you aren’t fully prepared to take on new clients. It’s crucial to have a deep sense of your business, such as what you excel at and whom you work well with.

Demographics matter, especially if your entire practice — from the workshops you run to the content you share online — is tailored to serving a particular niche.

“It doesn’t make sense to buy a business that’s totally different,” says Butler. “We’re not chameleons. There’s a certain market we do well in, and we should stick to it.”

3. Where will financing for the book come from?
Deals often fall through when the buyer mistakenly assumes that his or her firm or dealer is prepared to shoulder most of the costs, or that a bank loan will finance the transaction, Butler says. He suggests conducting a cash-flow analysis to work out how you can reasonably pay for the purchase over time.

4. How much is the business actually worth?
There are many variables involved in assessing the value of a financial advisory business, Butler says. For example, you have to factor in the average age of the clients and the number of households before projecting the recurring revenue.

On paper, the veteran advisor’s book might have a loyal base of high net-worth clients. But upon closer inspection, you might discover that a substantial percentage of those clients are elderly, and there’s no guarantee that their family will stay on.

This is the first part in a two-part series on buying a book of business. Next: Are you buying a book for the wrong reasons?

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