Business man signing a contract

When Alim Dhanji bought a book of business last year, he more than doubled the size of his book and gained access to many clients whom he already knew personally.

For Dhanji, senior financial planner with Assante Financial Management Ltd. and senior insurance advisor with Assante Estates and Insurance Services Inc. in Vancouver, this was a transaction made in heaven. That’s because Dhanji bought the book from the Assante advisor who had been his mentor for more than a decade.

“Our styles were largely similar,” Dhanji says, “and our philosophies were largely the same.” Those similarities satisfy two of the key considerations in buying a book.

The transaction was facilitated through Assante’s corporate transition program, which enables the firm’s advisors to sell their books to another Assante advisor. The firm also provides in-house financing to the buyers.

However, if you’re looking to grow your practice through acquisition, your experience may not be the same as Dhanji’s. You may have to go through the rigours of the process yourself: finding a seller, determining the suitability of the book, conducting due diligence, negotiating the price, obtaining financing and integrating the acquired book into your practice.

The common objectives of buying a book are to accelerate the growth of your practice, achieve economies of scale or expand into new areas of business or product lines.

For example, an advisor offering investment products may buy a book of insurance business, says George Hartman, CEO of Market Logics Inc. in Toronto.

Expanding an advisory practice through organic growth – relying on marketing initiatives and referrals – can be painfully slow, says Julia Haggerty, president of Advisor Finance Inc. in Toronto. “Buying a book is therefore like a panacea,” she says, “wherein [the advisor] acquires ready-made clients to grow their practice.”

That is especially true in today’s business environment. The growth of some advisors’ practices may have slowed due to increasing competition for new assets combined with declining margins caused by fee pressure.

Looking for the right fit

Finding a book of clients that will match your own can be a challenge. But few advisors will buy any book just for the sake of growing assets.

“Buyers have become a lot more discerning,” Hartman says. “And they will typically look for books that have a client base that is compatible with their own or is at least somewhat similar.”

Finding the right fit requires that you look at a range of characteristics of the book itself, as well as the practice of the seller.

Here are some questions you should ask when assessing a book of business:

Does the seller have a strategic plan that defines his or her vision for the practice? This plan should define the target market; growth strategy; acquisition and retention initiatives; cost and revenue projections; and other related strategies and tactics to ensure the business remains viable.

Does the seller have documented processes and procedures?

What is the size and geographical location of the book? Consider whether the book is too small or too large and how widely dispersed the clients are. Will servicing the client base be financially feasible?

What is the investment philosophy of the seller? Is it similar to yours?

What is the book’s product mix? Does the seller offer a full range of products and services, including investment and insurance products, as well as financial planning? Are there opportunities for you to cross-sell?

What is the fee structure of the book? Is it fee-based, commission-based or a mix of both?

What is the revenue structure? What percentage of revenue is transaction-based and what percentage is recurring? Is revenue increasing or decreasing?

Is the practice profitable? Has profitability been consistent?

What is the average age of the client base? The demographic makeup of the book will determine its long-term value. Consider whether the bulk of clients are retired or nearing retirement, and what proportion of the book comprises younger clients. Consider the average potential lifetime value of the client base and determine the percentage of clients who are in the accumulation stage vs decumulation stage.

What is the average income level of clients? Request a breakdown of client income.

What is the average client account size? Also consider the average revenue per account.

What is the turnover rate of the client base? Find out whether the book is stable or whether the attrition rate is high.

Once you have answers to these key questions, there are other issues to consider. For example, make sure the book you are looking to acquire is “clean, from a compliance and regulatory standpoint,” Hartman says, adding that the seller should have a good reputation.

But even buying a book from a reputable and popular advisor can go wrong, Hartman says: “Clients often use a change in advisor as the reason to leave, especially if they have been approached by another advisor.”

Haggerty advises avoiding books that include a large number of clients who are leveraged and books in which deferred sales charges (DSCs) account for a significant portion of revenue. Highly leveraged books can take substantial losses if markets decline. And because DSC accounts are locked in for varying periods, they limit your ability to make changes without incurring penalties for those clients.

Haggerty also recommends using a “second set of eyes” – a colleague or a professional business valuator – to help you make the right decision.

Finding a seller

Finding a book to purchase is not easy, says Hartman: “Advisors don’t hang up a ‘for sale’ sign.”

Slightly more than 10 years ago, many aging advisors were looking for buyers for their businesses so they could exit the industry. But times have changed.

“It’s currently a seller’s market,” Hartman says. “There are 50 buyers for every seller.”

With demand outstripping supply, Haggerty recommends actively searching for books for sale. She suggests participating in networking events, such as those run by the Financial Advisors Association of Canada (a.k.a. Advocis) and the Independent Financial Brokers of Canada, and letting other advisors know of your interest in buying a book. Also, approach older advisors directly, she says, and consult with professionals involved in business continuity and succession planning as a potential source of leads.

Says Hartman: “Tell everyone you know that you are looking for a book to buy.”

Another way to publicize your interest is to use online platforms such as or, which help connect advisors looking for opportunities to buy, sell or merge businesses, form partnerships or find a succession partner.

You also can register for a list of opportunities with Winnipeg-based Queenston Consulting Inc., which specializes in business valuations and transition planning for the financial services industry, including divesting, acquiring and merging businesses., a U.S.-based online platform that usually lists Canadian opportunities, enables advisors to search for a compatible business based on criteria such as size of book and amount of revenue generated.

When you find a book that interests you, Haggerty says, you should be aware that the seller may be talking to other potential buyers.

Conducting due diligence

Due diligence is one of the most important aspects of the acquisition process. The investigation begins once the buyer and the seller sign a letter of intent to proceed with the transaction. Due diligence involves a deep dive into the practice, including reviewing financial and client data, processes and procedures, and client files to confirm the reliability of all information gathered during informal discussions about the book.

“You have to dig deep enough to uncover any compliance or regulatory issues that may exist,” Hartman says. Failing to perform adequate due diligence can result in problems during the transition period or after the purchase is completed.

Haggerty says the due diligence process can be made easier if the seller can demonstrate the key features of the book – such as demographic, asset and revenue breakdown – using digital tools as opposed to paper-based files.

Prior to revealing the affairs of the practice, the seller typically will require you to sign a legally binding non-disclosure agreement to protect the confidentiality of the findings of the due diligence.

Negotiating the price

Once you have selected a book of business that you would like to purchase, you and the seller must negotiate the price.

“Market forces tend to drive the price,” Haggerty says, which usually ranges from two to 3.5 times recurring revenue, net of commission payments to the compensation grid. A high-quality book with specific characteristics, such as all high net-worth clients, will command a price at the high end of the range.

Hartman agrees that using a multiple of recurring revenue (he suggests two to four times recurring revenue) is one viable method for determining price. Another is to base the price on a percentage of assets under administration – usually 1%-2%.

However, Hartman says, these two methods are limited in scope in determining a true price because they assume all books are equal.

A third method is to employ a formal valuation, which, Hartman says, most sophisticated buyers use. A valuation method based on the future value of expected revenue – not on past results – will determine the current value of a book more accurately. The price should be based on the expected return on the buyer’s investment, translated into the profits the business is expected to generate after acquisition, he says. Furthermore, most advisors will use a business valuator to apply this method.

Once you decide to proceed with the acquisition, the seller will require that you sign non-compete, non-solicit and payment-provision documents. You and the seller also should document “payment provision conditions,” Haggerty says. These conditions protect you in the event there is higher than anticipated client attrition after the sale closes, in which case the price may be reduced.

Paying for the book

Haggerty says that up until recently, financing to acquire books was not readily available and buyers and sellers entered into a commission-sharing agreement for as long as seven years to offset the cost of the book. However, some banks are beginning to finance purchases, and companies such as Advisor Finance help buyers acquire financing from various sources.

Financing typically is based on the buyer’s credit rating and the ability to repay the loan out of cash flow from the business. However, banks require buyers to have “some skin in the game,” Haggerty says.

Hartman says few transactions are made using cash up front. In most cases, the buyer makes a down payment of 25%-50% and the balance is paid to the seller from earnings over several years as specified in a document called a “vendor take-back note.” Only when the buyer is well capitalized and can pay for the acquisition is a full cash settlement made, Haggerty says. Tax considerations also may determine the percentage of the down payment required by the seller.

Transferring the book

The transition process typically lasts 12 to 24 months, Hartman says, adding that the seller should stick around for this period and take all measures possible to maintain the practice and ensure smooth continuity.

Hartman suggests some specific initiatives the seller can take to ensure a smooth transition:

Personally introduce you, the buyer, to high-value clients to ensure they remain with the practice.

Hold a client event to inform clients that the selling advisor will be leaving and that they will be in good hands with the new owner – you.

Let clients know that the seller will be around for a specific period to address any concerns or questions clients may have.

Communicate with all staff about the transition and ask for their support and co-operation with you.