Add One More Name To Your Client List ...Your Own

? Do you primarily sell insurance or commissions-based securities or are you more involved in fee-based asset management?

? Do you have a proprietary means of managing assets or do you look to third party money managers?

? Do you want to retire now, in the next 12 to 18 months, or are you willing to work out a transition over a longer time frame?

All of these issues dramatically impact the value and the means to transition out of your practice. Advisors who are primarily commission-based will likely look to sell for a percentage of their prior 12 months’ revenue. There may be some room for negotiation that could involve from 0.8% to 1.5% of the prior 12 months of income generation.

A sole practitioner will generally have a lower valuation than one who has created a firm or team approach. Remember, the greatest asset we have to sell is our own “goodwill” and ability to manage the clients we’ve already cultivated. Client retention is a huge issue with which to contend during a transition. Most clients are not necessarily thrilled when their advisor is, in their eyes, suddenly looking to retire and replaced by someone new, especially if the successor is someone they don’t know.

Other methods of valuation include multiples of fee-based revenue (a higher multiple than you might think depending on how well you have established the business), or a percentage of net operating profit. The quality of your book of business is not the only factor to consider with this last method since overall profitability has a big impact on a business that is not necessarily managed as well as it should be.

An older advisor who was primarily commission-based and who had allowed his practice to contract over the past two years was one of the last practices that my firm helped to transition. He had no plan in place, yet he decided he was ready to retire from the financial services industry. This decision left him with little to no choice about what to do with his book of business and the value that would be attached to the business. With his options limited, the end result was far from what he had hoped for.

Another practice we assisted was of a similar model, although better structured. The business consisted of a sole advisor with an extremely healthy view of the value of the business. Detailed research showed an extreme slant toward commissioned-based securities transactions with little recurring fee income and a contracting client base.

Using one of several pricing models, the figure calculated was considerably less than the seller anticipated. Following a detailed explanation of the valuation process and model used, the advisor decided to rework his business model with a strong emphasis on fee-based planning and asset management that, if successful, should bring him close to his target valuation.

We as advisors are not that different from the clients we serve. We are good at what we do professionally, but much like the cobbler’s children are often the last ones to receive the attention we need in our own financial lives. So don’t forget to add yourself to your list of clients.

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“We are good at what we do professionally, but much like the cobbler’s children are often the last ones to receive the attention we need in our own financial lives.”