Close Close
ThinkAdvisor

Practice Management > Compensation and Fees

Ask These Questions

X
Your article was successfully shared with the contacts you provided.

As part of your due diligence process when you are considering purchasing another firm, there are certain bits of information you must uncover. Following are a few categories and questions culled from the due dligence literature.

More on this topic

Clients

  • How similar are the seller’s clients to your own?
  • Is the orientation toward fees and commissions similar?
  • What have the seller’s clients been told about fees or commissions before the transition?
  • How long have clients been with the seller?
  • How old are the clients? There is a huge difference in value between a book of 80-year-old clients who have been with an advisor for five years and a book of 55-year-old clients who have been with an advisor 15 years.
  • What is the relationship between the seller and her clients, and how does that match your style?
  • Is a specific niche or a broad swath (like retirees) targeted?
  • How much trust exists between seller and clients?

Operations and Technology

  • Does the seller use a contact relationship management system (CRM), or is the history of the business on yellow pads scattered around the office? If there is a CRM system, can the data be transferred easily to the system you use?
  • How easily can investment and performance history transfer to your systems? Of course, client stickiness increases when both buyer and seller use the same broker/dealer or custodian.

The Staff

  • Is staff transfer part of the deal? If so, is the staff worth retaining?
  • How will the staff fit into your current organization?

The Financials

  • Does the seller have at least three years of income statements and balance sheets documenting the fiscal health of the company?
  • Has an effort been made to look at the ROI on client niches?
  • Does the seller embrace generally accepted accounting principles or creative accounting?
  • Is there data on gross profit margin and operating profit margin?