Practice Management > Building Your Business

10 Steps to Buying a Practice in the Pandemic

Your article was successfully shared with the contacts you provided.
(Photo: Shutterstock)

The coronavirus crash likely means many advisors nearing retirement will dash to the nearest exit. Let’s face it: It’s tough to be a financial advisor when the markets are savaging client portfolios.

For advisors looking to scoop up a practice for sale, now’s a time of unique opportunity. Not that it will be easy. 

Before the crash, there were about 50 buyers to every seller. That ratio has improved on the margin, but it is still a sellers’ market. 

In my experience, most advisors score a financial practice by buying it from an advisor they already know. They don’t typically get it through third-party websites. In fact, those sites can’t always be counted on to produce results for prospective buyers. 

Selling advisors choose buyers they like and are confident in, when it comes to the buyers’ ability to do a good job for the selling advisors’ valued clients and assets. 

Complex Process 

There are no shortcuts. Advisors need to launch a focused, dedicated marketing campaign to identify and cultivate relationships with older advisors who are likely to step out one day. 

It’s like opening a new line of business. An advisor needs to set aside a given number of hours every week or month. 

They need to pursue this goal with the same passion and intensity with which they’ve built and continue to grow their financial advisory business.

It’s also important to remember that an advisor has to cultivate relationships with an older advisor who has a business style that’s compatible with his or her own. 

For example, if a potential seller uses exclusively ETFs and has trained clients to view active managers as overpriced and destined to fail, then an acquiring advisor with an SMA-focused business may not be a suitable prospect. Clients in that seller’s book are not likely to remain with the buyer.

What Are Sellers Looking For?

Prospective buyers need to show sellers not only that they can retain existing business, but that they can grow it.

That’s because, in addition to whatever monies are paid up front for the practice, the remainder of the purchase price is paid in earn-outs based on assets under management or levels of gross production. 

Sellers want to be assured that they are handing off their life’s work to an advisor who can help them attain their earn-outs.

Let’s consider these 10 steps advisors can take to cultivate relationships with prospective sellers:

1. Get to know older advisors in your branch and in neighboring branches.

You can review online profiles to figure out which advisors are likely to be worthy prospects.

While this step might be easier for wirehouse and other employee advisors, independent advisors can similarly focus on other advisors with their broker-dealer, especially in nearby locations. 

2. Attend advisor conferences. These are excellent opportunities to forge alliances with successful producers already with your firm.

Independent advisors can attend conferences sponsored by custodians that attract producers from other broker-dealers or RIAs.

3. Discuss your plan to acquire a book from a senior advisor with the prospective firm, if you’re considering changing firms, and see what resources they have to assist you.

You’ll need to carefully evaluate the firm’s advisor succession program and get a good grasp of the local managers’ willingness to assist you. 

4. Consider joining a branch with many older advisors.

5. Join and become active in advisor organizations like the Financial Planning Association or the Investments and Wealth Institute.

These are good places to forge new friendships.

6. Talk to your firm’s succession planning department, if you’re affiliated with an IBD or RIA custodian.

Staff with these departments are actively involved in matching buyers and sellers because they want to keep customer assets with their firm. 

7. Independents can seek out the guidance of their custodian’s relationship management team.

Their job is to service the needs of independent firms.

8. Product specialists, traders and home office staff can also be good resources.

They’re likely to know older advisors with a similar profile of business.

9. Talk to wholesalers and recruiters. Wholesalers know lots of advisors and can be fantastic resources. And recruiters can be sources of referrals to advisors nearing retirement.

10. Check out LinkedIn advisor groups, which also can provide another venue for making  useful connections.

Advisors now have an unusual opportunity to buy practices that are coming on the market unexpectedly. Follow the steps outlined, and you’ll improve your chances of finding a practice that is a match for your business.

— Related on ThinkAdvisor: