Advisers: Get a better return on your own biggest investment
Strategic Issues

Advisers: Get a better return on your own biggest investment

January 29, 2013

by Tony Vidler


It is a little ironic that many professionals in the business of advising people how to get better returns do not understand how to get a better return on their own biggest investment – their business.

Many advisers think a successful personal retirement is simply a matter of selling their business to another adviser, and that selling it for a pretty good price is a straightforward matter.

In years gone by selling an adviser business was a relatively simple matter of working out the recurring revenue that was contracted to come in (e.g. contractual rights to renewals on policies in force; renewable trail on AUM; etc).  That still happens of course…but is increasingly looking like poor value to sellers, and good value to buyers.


Because it is just an asset sale, not a business sale.

Valuing an income stream is a pretty straightforward proposition generally, and essentially involves placing a discounted value on a predictable cashflow.

But when you are selling a practice….a real business that has assets and ability and potential well beyond just a known (historical) cashflow, you are buying opportunity.  And opportunity generally attracts “premium” pricing – not “discounted” pricing.

If you are an adviser thinking that your business is potentially your biggest investment and you want premium pricing for it, then you need to think about what potential business buyers will be interested in placing premiums upon.  Here is a short list of big things that a buyer will want, and be willing to place a premium upon:

  •  Higher than usual client retention rates (a quality book of clients)
  •  Cultural fit (e.g. advice standards and type; fees & remuneration systems; philosophy)
  •  Systems compatibility (similar IT platforms; internal documentation processes; data & record-keeping)
  •  Key People retention (staff advisers; para-planners; administrators; specialists)
  •  HR policies (types of employment arrangements & contracts; contingent liabilities or incentivised team?)
  •  Marketing systems (proven processes for ensuring ongoing new business or new client acquisition?)
  •  Professional Development systems (established culture and methods of internal skills growth)
  •  Strategic Alliances (networking; business suppliers; product providers)
  •  Branding & Market position (reputation; market penetration & position)

Do not underestimate either the manner in which a transaction is conducted.  Other factors that can potentially enhance sale value include:

  •  Open & honest communication
  •  Fairness in negotiation, and understanding of what a business-buyer wants
  •  Understanding and confidence of what the seller will be doing post-sale (able to assist or potential competitor?)
  •  Seller  flexibility (how the outgoing owner will assist for a successful transition)

The two keys to successfully getting a better return on your own biggest investment as a financial advice practice owner, are:

1. Building a business which is sustainable without you (that a new owner can walk into and essentially keep running)

2. Creating a business which has growth potential for a new owner, rather than just being a dying contractual income stream.

© 2013 Tony Vidler.  All rights reserved. All materials contained on this web site not otherwise subject to copyright of other parties are subject to the ownership rights of Tony Vidler.  Tony Vidler authorises you to make a single copy of the content herein for your own personal, non-commercial, use while visiting the site. You agree that any copy made must include the Tony Vidler copyright notice in full. No other permission is granted to you to print, copy, reproduce, distribute, transmit, upload, download, store, display in public, alter, or modify the content contained on this web site.

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Comments (4)

  • Great stuff, Tony. Advisers who are ‘persuaded’ to sell their businesses for a multiple of their renewal commission are sellng themselves short. All those factors which you mention are accretive and, if a multiple of sustainable revenue is the base factor, then the additional factors to which you refer should increase the multiple substantially. Life insurance companies know full well that the current under-stated multipliers mean huge future profits for them, so ‘buyer-of-last resort’ clauses are at best a punitive reward for an adviser selling to his major provider – at worst, nothing less than a rort.

    David Whyte
  • thanks David. You make an excellent point on Buyer-Of-Last-Resort valuations – does any company still actually have them and utilise them though?

  • Thanks Tony, great reminder that we are running businesses, not just making sure we get paid. The biggest complaint I hear as an investment adviser is about the lack of continuity of staff with insurance companies. The client’s are divulging information they wouldn’t normally to just anyone, and certainly don’t feel like they want everyone in the company to know “their business”. This has often been a cause for them to change, or to just do nothing at renewal, which can also be detrimental come claim time. Business is essentially about people, those in it and those it serves, if you manage to get both right you are well on your way to a successful enterprise.

    Tanya Gilchrist
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