Adviser Succession: What do buyers of financial practices look for?
Practice Management & Strategic Issues

Adviser Succession: What do buyers of financial practices look for?

August 7, 2020

by Tony Vidler  CFP logo   CLU logo  ChFC logo

What do buyers want?

The irony of adviser succession discussions is how few of the advisers considering the topic seem to consider how to get a better return on what is often their biggest investment – their practice.  Sellers simply do not appear to think too deeply about what buyers will value and pay premium pricing for more often than not.


If YOU were buying a financial advisory practice what would you look for in order to determine whether it was a good “buy”?


Any adviser thinking about succession – either through an internal appointment or by selling to an external party – should focus on building the practice systems, positioning and infrastructure that potential buyers want.  To be blunt; if you are planning to move on and exit anyway what does it matter what systems you personally prefer?


Here is a list of factors that make a practice particularly attractive to a potential purchaser:

  •  Service propositions clear & process driven
  •  Differentiation in service offerings & clear client segmentation strategy
  •  Key revenue drivers & client profitability understood and measured
  •  Clear pricing strategies that are sustainable
  •  Fully compliant processes
  •  Range and depth of business relationships
  •  Quality and sustainability (persistency) of in-force business
  •  Effective and sustainable marketing systems
  •  Management systems and reporting (especially financial)
  •  Staff – both support and front-line advisory – experience, quality, qualified, stability.
  •  Strong positive business cashflow after any financing costs
  •  Practice management systems and processes


Increasingly such purchasers will also be ideally wanting something better than mere “compliance” – they want best practice in as many areas as possible.  That extends well beyond just the “advice” processes.  Best practice in management reporting, staff training and qualifications, service and communications process, and so on is on their ideal list.


There is value in adopting a best practice approach to building your practice – especially the value that can be obtained when it’s time to sell!


Alternatively of course the option remains to ignore all of this and just try and sell the assets “as is, where is” in the form of some simple multiplier of contracted renewals or trail.  That would save a lot of effort and substantial investment after all.  But do the maths on those choices….selling assets on a multiple of 2.5-3.5 times is worth $X….but investing 1-2 years and $Y in systems, etc can easily turn that into 4.5 x +, or even better 6-7 x EBIT.


How do the numbers stack up for you from an investment perspective?


If you decide to chase the bigger payday then invest in turning the practice into something that buyers will pay a premium for.  To do that you really do need to look at the practice from the perspective of what they want, not what you want.


You may also find this post useful:
5 Things You Need To Do Before Buying Another Practice


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