Buying's Not for Everyone

As creator of the on- line buy/sell concept and founder and past CEO of FPtransitions, I feel compelled to chime in on Mark Tibergien’s October column (“A Voice in the Wilderness”) regarding over- valued practice sales.

Mark contends he might be the lone wolf in his view that buyers should approach practice acquisition cautiously. It may give him comfort to know other industry associates, including myself, share many of his views.

Mark’s assessment that buying a practice is not a passive investment and requires a real time and money commitment is perhaps his best point. It is an investment that does require an above-average rate of return after owner compensation. Current values will make that an extreme challenge for most. In addition, acquiring 200-500 clients overnight almost always requires that buyers have greater capacity and greater expense than the seller experienced in their business.

Another caution Mark mentions should be examined further. Yes, buying a book of business will in most cases leave you with a large percentage of less-than-optimal clients. Of equal concern is how long the optimal clients stay with you–losing even one or two of the largest clients during the transition or before the total value is paid could be disastrous.

For these and other reasons, most solo advisor operations aren’t suitable to consider taking the risk of paying such high practice values. Indeed, as a principal of a succession planning consulting firm, I can report that numerous solos are looking to the historic emergence of thousands of financial planning graduates as a new path for their growth plans.

Buying a practice was never intended to be for everyone, nor should it be.

David K. Goad, ChFC

Succession Planning Consultants

Newport Beach, California

Getting Credit When It’s Due