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David Grau Sr.’s Top 20 Tips for Buying, Selling a Practice

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It’s a white-hot seller’s market in financial services practices. Over the last 18 months, for every one independent financial advisor, RIA or insurance agent seeking to sell their business, there are 50 interested potential buyers ready to explore acquiring it.

So says David Grau Sr., co-founder-president of the consulting group FP Transitions. Grau is a former industry regulator who’s arguably the foremost expert on financial services succession planning and business-perpetuation strategies.

ThinkAdvisor recently interviewed Grau, 57, who shared each of his Top 10 lists of critical considerations for selling and buying a practice.

Right now, mergers are the most popular M&A strategy on which FPT is helping advisors and agents. Indeed, the firm has completed more mergers in the last year than during the previous 10 combined, Grau says. That means sellers aren’t just selling and walking away; they’re selling and sticking around.

FPT, based near Portland, Oregon, helps independents through the complex process of buying and selling and, in addition, provides each seller with 50-plus qualified buyers from whom to choose.

Grau’s new book, “Buying, Selling & Valuing Financial Practices” (Wiley), is a granular guide to selling for maximum value and at optimal tax rates. For buyers, it’s a how-to about making an acquisition on the best terms — and then gradually writing off the purchase price.

Key to the whole process is sellers and buyers commissioning formal valuations of their practices. FPT has valued more than 8,000 practices since the firm launched about 20 years ago.

Before that, Grau was a state securities enforcement officer and National Association of Securities Dealers (NASD) Seattle office liaison. His former private securities law practice served RIAs.

FPT works on the independent side exclusively but with both individual advisors in the field and at the corporate level with firms such as LPL Financial, Fidelity and MetLife. In latter mode, it helps advisors build lasting independent businesses or sell their one-generational practices.

ThinkAdvisor spoke by phone with Grau about the overriding reasons for today’s strong seller’s market: numerous aging advisors, fee-based businesses sometimes worth as much as seven figures, and the hassle of ever-more rules and regulations. Plus, the expectation for a bear market in the not-too-distant future is prompting procrastinating sellers to say, “Hey, it’s time.”

Most of all, Grau says, advisors want to sell their business to a firm that’s the mirror image of what they’ve built – but two to three times larger.

Here are 20 tips for buying and selling a practice, as told by Grau to ThinkAdvisor:


1: Get a Position Fix

What have you built, and how have you built it? Do you own a job or a book? A practice? A firm? If you’ve built only a book with a cash-flow stream, you’ll need a completely different set of documents, tax strategies and valuation approaches than if you built a business with infrastructure, staff and enduring strength. 2. Focus on the “M” in M&A

Mergers are the most popular M&A strategy we’re dealing with right now. Technically, a merger is two practices coming together with most of the key personnel staying on. This way, you try to create one larger, sustainable business by joining forces with someone else and double in size. It’s a great idea.

3. Obtain a formal third-party valuation

Gather all the facts about your practice: Client demographics, how you earn your money, growth rate, regulations you operate under and so on. Put all that on a 12- to 15-page form and turn it over to a third party for analysis. They give you a number – the sum total of 20 or so years’ work – indicating what you’ve built and what the marketplace says it’s worth. This is the largest number in the advisor’s life. To reap its benefits, they can use it to attract next-generation talent as a partner, sell the practice or merge it. So after a valuation, all of a sudden, they realize they have to do something more than just enjoy the cash flow because now they’ve got a small business. That [big] number wakes them up.

4. Understand the impact of terms and taxes on value

You must tie value to payment terms and taxes. You need to think about taxes and what you can expect on an after-tax basis, how  the proceeds will be taxed and what you can do to control or reduce the tax bill. As for terms, if you get nothing down and a promise to pay over five years out of the cash flow your clients generate, you’ve taken all the risk. The buyer may promise you a  multiple of three times, but if you get nothing down and a five-year earn-out all in ordinary income, you’ve got a lousy deal.

5. Consider alternative strategies, such as sell-and-stay opportunities

We developed this strategy for owners who don’t want to quit working but want to sell their business to a [larger] party. The seller takes a job with the buyer and continues to work on a W2 basis. That way, they can slowly integrate their 150-200 client relationships into the bigger firm. This slows everything down and gives you more time to do a better job for your client base.

6: Study reliable benchmarking data

If you want to build a business that’s sustainable for the long term, be careful who you’re modeling after. If the benchmark data is from 90% of people who have built something that’s not sustainable, profitable or valuable, following what they’re doing is a bad tack. Benchmark off people who are going in the direction you want to follow someday.

7. Create a plan and definite timeline

An idea and a hope is not a plan. Develop a plan: Write it down. Test it. Do the math. Read and study: terms, taxes, value. Determine what you can expect, what you should demand and when you should sell. Talk to professionals, like a CPA or lawyer, or your broker-dealer. 8: Have a backup plan

Sometimes you get hit by the proverbial bus; so you need a continuity plan, someone to take over from you because of disability or death. Always have a backup plan just in case you don’t get to finish what you’ve started.

9. Sell on the way up

It’s always better and more lucrative to sell potential than trying to sell the reality of a decline. Don’t try to time the market: Once you have your business under control and it’s growing steadily and strongly, if you’re anywhere close to ready to sell, explore that potential thoroughly.

10. Focus on you: Spend time envisioning your next chapter

This means asking yourself some tough questions in the last three to five years of a career well spent. Such as: What will I do without a place to go every day and I no longer have people who depend on me? Will I be happier doing something else? Can I afford to sell my practice? Does my family support my decision? As I wrote, we’ve found that “women have an easier time calling it a day. It seems that they become a part of the business where they work, while with many men, the business has become a part of them…they could no more separate from what they do than they could cut off their arm.”


1. Where exactly is the practice located?

Location is a critical issue. About half our buyers are quite distant from the seller’s practice.  If a seller wants to make sure that after they retire, their office is kept open, they’re more likely to sell to a distant buyer who wants a footprint in that area [by making] a turnkey acquisition.  They’re more likely to keep the business running just as they found it.

2. What’s the revenue mix?

Predictable, reliable revenue is the most valuable, sought-after commodity in the industry.

3. What’s the level of client interaction?

 Be specific about the methods, frequency and depth of client “touches.”

4. How many clients does the seller personally service?

Here, the question is quality of service.  If 300 clients are already served and no staff is being added but 150 more clients will be taken on during the acquisition, is there capacity to handle them all and treat them in the same [high-quality] way?

5. Are there licensed employees or administrative staff who want to stay on after the sale?

If the staff has been there for 16 or 20 years, they may not be owners, but they’re like family. So if the seller goes, they want to make sure the staff is taken care of and has a chance to maintain employment with the new owner. In many of our [practice] listings, the seller will say, “I want you to consider employment for my three key staff members.” Not only is that important to the seller; it’s important to the clients. If, for example, clients can work with the same administrative assistant, it will help continuity. The buyer will keep more clients, and the seller will be more likely to realize full value. 6. What’s the seller’s AUM?

Not all practices are fee-based models. So, in what part of the client base is the majority of AUM concentrated? But AUM isn’t necessarily a function of value. It’s just a mathematical number, like gross revenue.  

7. Does the seller want to stay on and work, or sell and leave?

The assumption and hope is that the seller will stay post-closing part time for up to 12 months to help the clients [transition] from one advisor to the next. If the seller stays longer, great. If shorter, that could be a problem. So the seller’s post-closing availability can affect the value.

8. What’s the average age of the seller’s client base?

Client demographics are a huge issue. If the seller has clients in their 70s and 80s that are facing drawdown events and possibly [imminent] death, from a buyer’s point of view, that will have a negative impact on value. What buyers would really like is a fixed client demographic. It’s best to have 50- and 60-year-olds; but of course the job comes [serving] 70- and 80-year-olds. You have to ask those questions to find out what the seller is selling. If they’re selling something that’s not likely to still produce in five years, that will negatively impact value.

9. What’s the seller’s regulatory structure?

In this highly regulated industry, things can get quite complex. Some sellers can have a stand-alone RIA, or they can be under a broker-dealer. They can [sell] insurance, too, or also be a CPA.  The buyer wants to replicate the same cash-flow levels and the same growth rates that the seller had. What regulatory licensure and registration will be necessary for the buyer to replicate what the seller has done?

10. Does the seller have referral pipelines in place?

That’s a big one too. If the referral pipeline is tied personally to the seller – [i.e.,] “It’s all about me.” – that’s difficult to transfer when they retire. If a referral pipeline [consists of] four or five great advisors – any one of whom are interchangeable – and growth comes from that, this is a big deal to the buyer.

THINKADVISOR: Closing thoughts about selling a practice?

GRAU: It’s humorously ironic that in this industry very, very few advisors – including professional financial planners – create a plan for themselves. The typical plan is back-of-mind: In five years, I’ll sell. Five years later, it’s the same plan: I’m still healthy and happy – so, in about five more years, then I’ll sell. That’s not a plan.

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