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.

Grau suggested, because I was an advisor seeking a career change from financial planning to writing, that Behn familiarize himself with my published articles. Behn did so and gained a small advantage. Don't be afraid to find out who your seller is, particularly if he has achieved some public notoriety. Anything you learn about him, personally or professionally, that other would-be buyers haven't taken the trouble to ferret out can give you a leg up on the competition.

He carefully constructed his buyer's listing. At FP Transitions, each prospective buyer can list a handful of key features of his firm and add some brief, general comments. In other words, he's got a very limited opportunity to say just the right things to gain a seller's attention.

Selecting a random buyer's listing from the FP Transitions site, we see he makes the following paraphrased, general comment: "We are a fast-growing financial planning firm with multiple locations nationwide and are interested in acquiring several small firms. Let us introduce our successful business model to your existing client base." This sounds promising until you read through the rest of the listing. This would-be buyer provides no answer to "Designations/Degrees" nor to "Highest Level of Education," which suggests he lacks the minimum desired personal qualifications. For "Operating System Software" he answers "Other" which raises questions about his technology platform. But he really sours things when he indicates he has one year in the business and his total annual gross revenues fall between "$0 and $100,000."

He says he's looking to acquire one or more businesses in the $0-to-$900,000 price range, yet his "particulars" suggest he's incapable of doing so. Could he buy anything? Yes, he might be able to purchase a business segment another advisor is attempting to sell, such as the low-fee, less-complex planning segment of his practice-perhaps clients the advisor picked up earlier on and no longer finds appropriate to his business model. In short, when this prospective buyer shares his information with a seller of, say, a $500,000 practice, that seller will trash that bid faster than week-old leftovers.

Behn's listing, unlike the example above, was internally consistent, as well as congruent with my own listing. That is, it suggested compatibility between the buyer's status and the type of practice he was seeking for purchase.

He demonstrated the capacity to serve more clients. Compatibility between buyer and seller is just part of the equation, though; the rest is capacity. Can the would-be buyer absorb into his practice the clients you are selling? Does he have the idle capacity to do so?

OK, Behn had a fairly typical five-year-old practice. He could demonstrate that he'd successfully marketed, acquired, advised and retained high-net-worth clients to the tune of $15 million under management. Yet, like most solo practitioners with good internal systems, he was nowhere near capacity. It was clear to me that he could take on my 45 high-net-worth clients ($65 million under management), which required 30 hours per week of my time to advise, and provide them the high level of service to which they were accustomed.

Supposed he'd been at capacity? Would he be out of the game? Not at all, but he'd have had to present me with a gameplan for increasing his capacity. If mine was a company with several employees, he might agree to retain them. Doing so would provide a source of continuity for my clients to help them feel more comfortable with the change of management.

Or, if there were no seller employees to retain, he might have presented me with the resumes of several associates he intended to hire. In fact, we might have made this a condition of sale. Perhaps a move to new office space would be necessary and also made a condition of sale.

The key to getting your seller's attention and convincing him to choose you to buy his practice isn't slick marketing that covers up inexperience or lack of capacity. Unless the seller is totally naive or ill-advised, he's not going to select you just because you talk a good game ... especially if your vital stats contradict everything you say about your ability to successfully consummate the transaction. That is, you must be qualified. Conversely, though, the best buyer may be overlooked because he doesn't know how to compellingly present his case and stand out from the crowd.

David J. Drucker, MBA, CFP ([email protected]), a fee-only financial advisor since 1981, is a principal in Practice Merger Consultants Ltd. (www.practicemergers.com), and editor of the Virtual Office News.