“Coach’s Forum” is a place in which you can ask your questions, tell your stories or give your opinions on any aspect of practice management. For each column, George selects the most interesting and relevant comments from readers and offers his advice. Our objective is to build a community of people with a common interest in making their financial advisory practices as effective as possible.

Advisor says: For health reasons, I am seriously thinking about selling my practice so I can enjoy a few years of retirement. I don’t have any children interested in my business and I am the only financial advisor in my dealer firm within 100 miles of my location, so I am forced to sell to a competitor.

Fortunately, there are several other advisors in town to whom I would feel comfortable handing off my clients. However, I operate in a small community where rumours spread quickly, and I fear what might happen to my clients and my staff if word got out prematurely that my business is for sale. How do I maintain confidentiality until I am ready to tell the world what is happening?

Coach says: I commend your concern about confidentiality. You don’t want your clients worrying about the quality of advice and service they might receive from a new advisor, nor do you want employees to be anxious about their future.

Here are some strategies to help you manage sensitive information, both before and after you choose your successor:

Stage 1: Before the sale

Given that you have decided to sell your business, you should immediately create discipline regarding confidentiality. Begin with communication protocols, such as:

– give the project a generic name à la “Project Sky”

– set up a non-corporate email address: sky@gmail.com, for example

– when practical, use cellphone text messaging to communicate with your potential successor

– identify an off-site location for meetings regarding the sale

You will have to provide considerable information, including financial data and client details. Where possible, gather that information over an extended period to avoid speculation about why you suddenly are asking for volumes of material.

This last step highlights one of your concerns: when to tell employees about your contemplated sale. In many instances, they will need to be involved in gathering required information and, eventually, in meetings with prospective buyers. The risk is that a key employee will begin searching for new employment in the fear that he or she will lose their job when the deal closes.

There is no “one size fits all” approach to dealing with key employees. However, what often works is to have a confidential discussion to inform them about the potential sale. Tell them that you don’t know how the process will turn out; it could result in an outright sale, a partnership or some other outcome.

Assure your key employees that you will do your best to take care of them. If appropriate, put an employment agreement in place that promises, as examples: n an attractive severance package should the buyer terminate the employee within a specified period

– a one-time bonus for the employee’s assistance in completing the transaction

– a loyalty bonus if the employee remains with the practice for a specified period

What if employees (or clients) find out from someone else?

Given your age and health, the best approach may well be to “fess up” and describe your motivation and options. Loyal staff and clients would be wondering about your future and theirs already, so they will be reassured in knowing you have a plan.

If you feel the need to keep everything under wraps, say something like “I am always being approached by potential buyers. I listen, so I can keep track of what our competitors are doing.”

Stage 2: During the sales process

The moment you begin discussions with prospective buyers, the likelihood of a confidentiality breach increases. For that reason, I suggest narrowing your field of prospective purchasers to two or three from the beginning. Define your “ideal candidate” qualifications and rank your list of potential buyers from “most desirable” on down.

Now, you have two options. One is to begin a conversation with only the candidate at the top of your list. If that doesn’t appear to be leading to a deal, begin a conversation with No. 2, and so on. Dealing with only one candidate at a time reduces the confidentiality concern.

The downside to this strategy is that negotiations can take a long time, and you could be tied up in an “exclusivity” agreement that prevents you looking elsewhere, even though the process isn’t progressing as you hoped. In addition, the longer this part of the process takes, the greater the risk to confidentiality.

An alternative approach is to engage with all candidates at the same time. Let everyone know there are others in the running, thus creating a sense of urgency as well as competition, which may increase bidding. The confidentiality risk is that more people talking about a deal can lead to more leaks.

To protect against confidentiality breaches in a multiple-buyer scenario, have an unrelated third party work on your behalf to make the first contact, identify interest levels among candidates and begin preliminary discussions. Your representative can describe the opportunity on a “no name” basis and try to offer only enough information to capture prospective buyers’ interest. However, expect that in a small community, people will speculate on who you are with just a bit of information.

Insist that anyone who expresses interest sign a non-disclosure agreement (NDA), bearing in mind, however, that you will have to reveal your identity at this point and a NDA seldom weeds out anyone just looking for competitive intelligence. You can reinforce the need for secrecy when you provide a confidential information memorandum or, less formally, arrange an information meeting, at which you (or your representative) provide sufficient information for the potential buyer to assess the potential strategic fit between his or her business and yours.

Even though you will have an NDA in place that requires anyone who signed it to destroy all of the information received, those prospective buyers still will remember important details regarding your business. For that reason, do not disclose particulars at this stage, such as client names, profitability and so on. If a potential buyer doesn’t proceed beyond this stage, you don’t want sensitive information floating around in your community.

When you are confident the prospective purchaser is sincere, provide more details while still protecting highly sensitive information and demonstrating value. For example, disguise clients’ names in a report listing all accounts, while still showing that the majority of your revenue is recurring fee-based.

The letter of intent is next. This document brings you closer to a final deal, but also increases the risk of a violation of the NDA particularly by inexperienced buyers (and sellers) who assume the deal is done and begin talking about it too freely or unexpectedly ask your team members to connect with them on social media.

A final note: you must continue to manage your practice effectively throughout the sale process to avoid suspicion among employees and clients, and also to ensure that deteriorating financial performance doesn’t have a negative impact on the price or the terms of the deal.

George Hartman is CEO of Market Logics Inc. in Toronto. Send questions and comments regarding this column to george@marketlogics.ca. George’s practice-management videos can be viewed on www.investmentexecutive.com.

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