Catching the seller's eye.
In the first part of this series, we discussed those preparations a successful buyer makes before entering the marketplace to bid on a practice. We looked at the practice of Kristofor Behn, president of Fieldstone Financial Management Group LLC, who bought 90% of my client base in 2001.
Let's see what Behn did right to rise to the top of my own 40-would-be-buyers list. Clue: It wasn't just the money. Sure, his bid was attractive, but that alone wasn't enough to earn him the top spot. There are too many problems with too many buyers that can make a bid with surface appeal worth less than it actually appears.
Here's what Behn did right:
He went after a practice like his own in several key ways. First, we had similar fee structures; we both ran fee-only practices. Second, we had similar clients; we both targeted semiaffluent retirees and preretirees. Is it absolutely necessary that these characteristics be shared by both buyer and seller? No, but it helps considerably. Says David Grau, president of Business Transitions of Portland, Ore., the online marketplace for buying and selling advisory practices, "Sellers of fee-only or other specialized practices almost always pick buyers with similar firms."
As we said in Part I of this series, a smart seller has two goals that transcend all others. First, he wants to do what's right for his clients. Second, he wants his clients to stay with their buyer-that's how he gets paid. If the buyer transfers the seller's clients to his firm and then hits them with a different fee structure-particularly if he makes a radical change from, say, fees to commissions-most of the clients will bolt. After all, they been counseled for years that fee-only is best, and that's one of the reasons they chose their original advisor in the first place.
If the fee structure's the same but the buyer has little experience working with the type of client being sold, that will also hurt the ultimate client retention rate. This was a major hurdle my own buyer had to vault. While his clients were very similar to mine, he was 28 years old to my 53. Did he really know how to relate to and develop trust with monied clients several generations his senior? Yes, but he had to prove this to me.
He provided similar services to his own clients. If the buyer is primarily an asset-gatherer doing superficial, if any, financial planning, and bids on a practice that combines full-scale financial planning with investment management, the smart seller will see that the buyer needs to master a new skill set. What's wrong with this picture is that the seller is going to be the teacher, perhaps for a very long time. Sure, the seller has a vested interest in client retention and expects to be involved in the transfer of his clients' loyalty to a new advisor, but he doesn't want the process to drag on indefinitely. The longer the seller must remain involved, the lower his return on investment.
It was clear to me that Behn already knew how to provide the services my clients were receiving, because he was already providing them to his own clients.
He asked me for the right information. As a buyer, Behn initially asked far more about my client base than most other bidders, giving me the impression that client retention was just as important to him as it would be to me. With enough information, he was able to confirm our client bases were compatible and develop a detailed timetable for the transition of the client relationships. He convinced me that he had a solid plan to earn my clients' trust and move me out of the picture as quickly as possible. (Some sellers might have mixed feelings about this, but the smart ones know their investment is rewarded more highly the sooner they leave.)
Other would-be buyers, ironically some more seasoned than Behn, were very eager and financially prepared, yet didn't inspire confidence. By asking questions, the buyer doesn't demonstrate ignorance; he demonstrates sincerity and the understanding that one must dig below the surface for critical information to make the acquisition a success.
He did his homework. Our transaction took place within the aforementioned online marketplace, FP Transitions. Says Grau, "We think we do a very good job of not only helping to close deals, but assisting both buyers and sellers in finding the right match."
Behn took advantage of FP Transitions as a resource in a way not too many buyers do: He called their staff and asked for help in finding out more about me as a seller. He wanted to know whatever was needed to attract my attention, and he wasn't afraid to go as far behind the scenes as FP Transitions would allow in order to get some tips on how to approach me.