handshaking and exchanging contract documents

Financial advisors looking to sell their books of business need to stop thinking about their practices as a service and start thinking about it as a business instead, said Julia Haggerty, regional manager with Richmond Hill, Ont.-based CWB Maxium Financial, at the Canadian Institute of Financial Planners’ 16th annual national conference in Halifax on Tuesday.

“Make your practice a marketable asset. Think proactively about how you can increase value. You need a strategy,” Haggerty said during a presentation on maximizing the value of your practice and what to look for when buying a book of business.

Potential buyers will look for demonstrated quality in three key areas: revenue, client base and practice operations. In addition — and equally important — is the “transitional quality,” said Haggerty. “Timing is everything. Sell your practice while it’s doing well not while it’s dying on the vine.”

That requires patience, though. Haggerty noted that it usually takes at least a year to find a buyer, six months to negotiate a deal, and upward of two years to extricate yourself fully from your former company. “Transitional quality is a big part of the value of a book sale. If there is no transition, then the price drops.”

The nature of the transition may be reflected in the type of sales agreement that has been reached. For example, some advisors sell their book in stages, over the course of several years. Others sell shares in their company. “You do not have to sell all at once,” Haggerty stressed.

A strategic and well-timed transition plan also enhances the value of a sale by offering reassurance to both clients and buyers, Haggerty said: “Clients dislike change. Buyers need to know you will facilitate the transition so clients barely feel a bump.”

A transition period may, in fact, be mandatory, she added: “Lenders may require sellers to stick around for a couple of years.”

Haggerty recommends that the “sale” of a book of business be positioned in whatever way will be most effective with clients. For example, sellers may opt not to use the word “retirement,” which can imply leaving the advisor is practice altogether. Instead those selling a book may discuss the new “partnership,” said Haggerty. “Let the buyer know you are open to co-developing the story.”

When you’ve bitten off too much

Making the buyer part of the team in clients’ eyes also is essential. This can even involve changing the name of the practice if the seller’s personal name is dominant. It can also include highlighting to clients the skills the buyer brings to the business and to their investment portfolios. This will be particularly important if the buyer is younger and not well known to investors.

As well, it’s critical for buyers to assess realistically the work that will be required to run the new business and to pay for it. New buyers counting on first-year commissions to pay loans may find themselves covered in red ink, said Haggerty. The hours required to run the business, at least initially, will often cut into sales time.