When there is a competing offer on the table, it can be challenging for a potential buyer to convince an older practice owner that he or she is the best fit. That can be an even higher hurdle for younger advisors when the bidding process includes a veteran advisor with more purchasing power.
Thankfully, younger advisors still can win over sellers without getting into a bidding war. Of course, you will need to differentiate yourself and the value proposition of your practice. But beyond that, the most effective strategy is to build a stronger relationship with the seller than other bidders — ideally a couple years ahead of a seller’s retirement and, therefore, before competing offers start to materialize.
While you can go about this in various ways, I have seen these three approaches get results, either by themselves or together.
Many potential buyers talk a good game about wanting to know all about the seller, their practice and upholding their legacy. But absent the type of introspective questions that suggest that as a buyer you “get it” or at least are trying to, much of this talk is frequently hot air.
Start by asking why the seller first entered the financial advice profession and why they are now looking to exit the business. Then, ask how they overcame their biggest career challenges and what they see as the most complicated hurdles facing their practice’s future owner. Next, ask them to explain their day-to-day interactions with clients, staff and third-party vendors.
Finally, explore their philosophy of investment management, financial planning, and how they create solutions for clients. Some advisors are more investing oriented and do little financial planning, or vice versa. Some advisors prefer set-it-and-forget-it target date funds, while others prefer more proactive strategies. How often do they meet with clients, how does their clientele break down, and so on?
At each stage of the conversation, summarize what the seller has told you and briefly share your own relevant experiences from your career. Doing this shows that you have a genuine interest in what they are saying and have built over the years, deepening the bond you have with them and making it easier for you to make suggestions.
Assist With Organization
It’s no secret that most financial advisors spend the bulk of their time running their practices. As a result, few are as organized as needed when it comes time to sell. No one shows a dirty, unkept home to prospective buyers.
Similarly, the process of selling a practice is much smoother when the business is tidy, ordered and neat. You can add real value to a seller by paying for a third-party valuation of their business, organizing their recordkeeping and laying out a transition timeline.
It’s a good idea to get the valuation off the table as early as possible so it does not become a negotiating tactic later. However, valuation providers do not typically audit a seller’s books. Therefore, after a letter of intent has been signed and during your due diligence process, make in-office visits to review and properly categorize all the seller’s assets — from where they are located to how they are set up.
You can do this while organizing their other records for client segmentation, staffing and compliance purposes.
Remain Flexible on Terms
One reason to lay out a transition timeline for the seller is to help organize their thinking toward an exit that is mutually beneficial for both parties. Another reason is that it makes it much more likely that the sale will go through because the buyer will not want to repeat the process with another buyer. But perhaps the best reason to provide a timeline is to show the seller you can be flexible on deal terms.
Many sellers want to exit their business without feeling like they abandoned it. Perhaps let the seller keep their previous title during their transition period (as long they maintain any required licenses), entice them to attend monthly staff meetings for the next year, or use them as a sounding board for how to handle an issue with long-term clients. This will make them feel better and enable a smoother transition.
You should only agree to terms that work for your career goals. But as a younger advisor looking to avoid getting into a bidding war with a better capitalized rival, your odds of buying the practice may skyrocket when the seller sees that you are willing to negotiate on something other than price.
Alex Chalekian is the founder of AdvisorsUNITE (https://advisorsunite.com/), a national network for advisor-focused M&A and succession planning strategy.