succession-planning / treety

Buying a book of business can help an advisor grow their practice exponentially over a short period. But paying for that book over the common three-year timeline can be daunting.

Recognizing that issue, Richardson Wealth Ltd. launched a $25-million internal financing program this year that will allow buyers to spread their payments out over seven years. Further, the program will allow buyers to pause payments if they go on leave.

Mike Ankers, senior vice-president and head of advisor experience and growth with Richardson Wealth, said the firm wanted to find a way to help more young women to purchase books.

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“We’ve talked to women who will say, ‘I’ll wait until after I have kids and then we’ll do something.’ Let’s not wait. Do what’s right for you and your family first, and we’ll work around you,” he said.

Ankers said the firm is also hoping the program’s seven-year repayment requirement will make buying books more accessible for advisors earlier in their career.

“Large advisors quite often come with the largest bids, because they can afford the quickest payback,” he said. But with an internal financing program, the seller is paid by the firm, and there’s a separate agreement with the buyer. “[That] allows two separate objectives [and] allows more bidders to come into the process.”

So far, the program has financed four transitions, with half of the buyers being women. Another 10 transitions are in the pipeline, three of which involve female buyers.

Now that Richardson Wealth is guaranteeing the seller’s payout, Ankers said some of the departing advisors are opting to be paid out over five years instead of three, citing the tax benefits of spreading out the lump sums.

The firm also provides benefits coverage for the departing advisor until they’re fully paid out, so a five-year timeline lengthens that period.

“Many firms have internal financing programs for the acquisition or transition of books of business,” said George Hartman, CEO of Market Logics Inc., noting that three years is a typical repayment period. “The most common example is they will set a value on the business that is a generic value based on a rule of thumb they apply: a percentage of assets, some multiple of revenue. They will finance that up to the limit of their valuation.”

Ankers said Richardson Wealth supports its departing advisors as much as they want in setting a price, but that ultimately the choice is the advisor’s.