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Practice Management > Succession Planning

How Do You Transition More Clients Than You Have? By Doing It Right

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In his Oct. 14 AdvisorOne story “What’s Your Practice Worth,” AdvisorOne Editor Jamie Green wrote about a presentation he attended at the Fusion Advisor Network conference in Las Vegas, given by FP Transition’s David Grau Sr. and David Grau Jr., and their latest data on the market for independent advisory practices.

He did a nice job describing the elements that the Grau’s have found to increase the value of advisory firms. But I was curious about the average “95% client retention rate” that FP Transition buyers experience in their acquisitions. Retaining the clients, of course, is the key to a successful practice acquisition, and I wondered how FP Transitions managed to transition so many clients, so consistently. 

So, I called my old client and friend, David Grau Sr., to find out how they do it. “Actually, when you do a transition right,” David said, “you get 110% client retention or more.” David’s always saying things like that—that make you say “what???”—so I took it in stride and calmly asked him where the additional 10% comes from.

The answer, as you might imagine, was quite a bit longer than the question: “These days, there are essentially two ways to ‘sell’ an advisory practice,” he began. “You can sell internally, to your junior partners, or you can sell to an outside firm. What’s different about today’s market is that when firms sell to another firm, it’s almost always a larger firm, often two or three times as large.”

David says that the operative question in these firm to firm sales is: “How did the buyer get so much larger in the same time or less than the selling firm?” The answer is that the bigger firm is really good at what they do. They know how to attract and retain clients, they have long experience and usually a broad range of professional expertise, and they have excess capacity to handling the influx of new clients from the selling firm. Consequently, it’s not much a surprise that the vast majority of transferring clients are more than impressed with the service they receive at the new firm.

In fact, according to FP Transition’s data, they are usually so impressed that they hand over any additional assets they might have had in floating accounts, and they talk to their friends about how impressed they are, leading to new referrals. According to David, 110% is probably a low estimate. 

The typical practice sale is an internal succession. Historically, transitions to junior partners in advisory firms haven’t worked out well, in many cases. But FP Transitions has spent years researching and then developing a program that virtually assures a successful internal transition: starting with selecting the right junior partners, and gradually transferring ownership to them over seven to 10 years.

“Most advisors who sell their practices today are between 55 and 60 years old,” says Grau. “They don’t intend to stop working any time soon, and they certainly don’t want to stop collecting their considerable pay checks. Yet, usually [they] have slowed down a bit. Properly incentivized and motivated junior advisors almost always breathe new life into an advisory firm; the clients notice and really appreciate the change.”

Not to mention that the younger advisors are highly motivated to grow the firm in order to buy out the senior advisor. Which leads to more clients, more assets, and more than a 110% client retention. 


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