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For Sale: 500 Advisory Firms

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Here’s an eye-popping prediction: more than 500 fee-only financial advisors will sell their practices over the next five years, according to Tiburon Strategic Advisors in Tiburon, California.

In mid-April, Tiburon released an updated version of its research report, “A Comprehensive Overview of Succession Planning, Firm Valuations & the Growing Acquisition Market for Financial Advisors.” The report found that because of the “explosion” in the number of independent advisors–fee-only and independent reps–succession planning has become a critical issue for them. More than half of fee-only advisors–27%–plan on selling their businesses when they retire, with the majority of sales going to a partner or an employee, the report says. Twenty-one percent of independent advisors plan to sell to an institutional buyer, while 5% will sell out to a competitor.

Those advisors managing greater amounts of money are more likely to have a succession plan than their smaller brethren, the report found. Those advisors looking to sell their businesses are also getting younger. In 2003, 51% of advisors that listed their practice on Business Transitions’ Web site were less than 50 years old, Tiburon says. Only 26% of the sellers in 2000 were of the same age.

The biggest obstacle advisors face when deciding whether to sell their practice is “less about valuations and more about terms” of the deal, Tiburon found. For instance, 36% of advisors believe an inadequate down payment would stop them from selling, while 26% of advisors said the length of seller financing would be the key factor in convincing them to sell. Tiburon performed a recent telephone survey and found that the top reasons advisors had passed on previous takeover attempts was because of “conflicts in philosophies” and because the advisors felt “no need to sell.”

There are now six types of buyers: financial, hybrid, strategic, competitors, partners, and employees, Tiburon says. More than 500 transactions have occurred over the past few years. National Financial Partners (NFP) has acquired 153 firms, FP Transitions facilitated 260 transactions, Moss Adams 38, and iValue 29, the report says.

Tiburon also looked into its crystal ball and predicted the following: Financial buyers will never be successful; banks will be on a buying spree, snapping up 100 firms in the next five years; and a few hybrid financial/strategic buyers, like NFP, will consolidate the advisor industry and build a nationwide financial advisory business.


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