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Practice Management > Succession Planning

Want to Sell Your Practice With No Transaction Fee?

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As a recruiter helping advisors with career transitions, Phillip Flakes noticed that a lot of his clients were saying their next move would be their exit from the industry. The savvy entrepreneur didn’t simply move on to more active prospects but realized there was a business opportunity in helping advisors in their final career transition.

The result is Succession Link, a new online marketplace for advisory practice mergers and acquisitions, which went live in May. While there are plenty of such businesses, Flakes’ offering may be a unique value-add coming from a recruiter (his StarPoint Consulting Group has been arranging advisor/broker-dealer marriages for four years now.)

But it may be unique in another way as well. Succession Link charges no transaction fees to advisors selling their practices. Its business model is based on subscription fees to buyers looking for acquisitions on the site.

“Other competitors do charge transaction fees,” Flakes told ThinkAdvisor in a phone interview. “Others will help the buying advisor find a practice. We will certainly help as well, but we want to start with the selling advisor first.”

The free listing has so far attracted 44 advisors to list their practice since the site’s May launch (41 are listed currently), a majority of which are sole practitioners along with a few two-to-three advisor shops and some larger teams.

“We’re hoping that advisors at least stop in, test the waters, and see what the market will bear,” Flakes said.

While Flakes helped to seed the site with practices from among the 60 advisor groups that StarPoint has helped to transition, he sees a broader marketplace beyond these prior relationships in building Succession Link.

“67,000 advisors are 55 and older and … what that says to me there is certainly a huge opportunity,” he says. “And very few have a formal succession plan in place.”

Besides the wasted opportunity of a business going to its grave without giving its still-vital organs a chance for new life, Flakes argues that aging advisors must confront a basic ethical question about what is in their clients’ best interests.

“What if the client were asking the question: Do you have a succession plan? And for advisors who do not, what would your response be?” Flakes asks.

“Financial advisors have to remember there are clients attached to the assets they manage,” he says. “If you’re trying to hold on as long as you can and not bring in a junior advisor, you have to question what that says to the client in the end.”

For those advisors who have dipped their feet in succession, some hold out in another way—refusing to sell unless they get the multiple they want on their practice. But that is their prerogative.

Phillip FlakesFlakes (left) says selling advisors can list their own asking price, state their preferred multiple — say two or three times revenue — or list no asking price whatsoever. Some may stick to their price and others may lose resolve or be attracted to a deal in hand.

“We do get our handful of advisors that say ‘if I don’t get the multiple I want on the practice, I’ll just keep working,’” he says.

Asked what current valuations look like, Flakes responds that there are “rules of thumb, which I don’t love” that advisors can get the equivalent to its nonrecurring revenue and two times recurring revenue.

But he insists there are qualitative factors beyond those formulas in valuing a book of business.

“We can do a long-winded valuation, and we also have a short list of companies that specialize in doing valuations” — or the advisor can get his own appraiser,” Flakes says.

He believes the free valuation offered for listing on the platform could probably get within a percentage of a professional valuation, but emphasizes that a third-party appraisal was important for the advisor’s peace of mind.

“We don’t want advisors to think we’re conflicted,” he says.

Aggregating assets of the practices currently on offer on Succession Link (as opposed to a practice-by-practice survey), Flakes asys 62% of assets are commission-based and 38% fee-based.

He says that even a 100% commission-based business — he has one such practice with $35 million in assets currently listed — can represent an attractive acquisition.

“As a buying advisor, that represents a lot of opportunity to move that business toward a fee-based model,” Flakes says. “It will be lower valuation on the practice and a bigger opportunity if the new buying advisor can help restructure.”

The Succession Link co-founder (together with partner Nicholas Gudz) says that broker-dealers typically help a buying advisor finance the transaction, but in a case where the broker-dealer does not provide that service, or for many RIAs lacking that access, help is available.

Succession Link has just announced a strategic alliance with PPCLoan to provide streamlined financing for advisory practice acquisitions.

“We do not provide the financing … but we wanted to go out and find solutions for advisors,” he says.

Check out Is Your Practice Big Enough? on ThinkAdvisor.


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