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 Massachusetts-based Fieldstone Financial Management Group LLC, who bought 90% of my client base in 2001. In the second installment, we looked at the ways in which Behn promoted himself to the top of my list of would-be buyers. Now let's find out what he did to retain the vast majority of the clients he bought.
And before we address that question, let's understand why we're focusing primarily on client relationships: Because they're the most valuable piece of the business. Some buyers just buy the client relationships; others buy equipment and leases, and continue to employ seller staff persons. But the greatest value comes from the clients. The present value of their expected fee income, which hopefully will continue well into the future, is far greater than the market value of any other company asset you have purchased.
So the first thing you must do is familiarize yourself with your new clients. Sure, you have studied the overviews given to you by the seller during your negotiations. But now that you actually own the clients, you need to absorb many details about their relationship with the seller (depending upon how long they were clients of the seller prior to their purchase, of course).
Ideally, this information exists not in multiple paper files but in computer records. The modern advisor collects critical client information in a client relationship management (CRM) program like Junxure-i or ProTracker, including scanned images of client documents (e.g., tax returns and estate plans), client correspondence and e-mail back and forth between the client and advisor. This level of organization and ease of retrieval makes your job, as the buyer, far easier than plowing through volumes of paper that may be improperly filed, missing or, in the case of handwritten notes, illegible.
In fact, the form in which client records were kept by the seller and will be transferred to you is a major negotiating point often overlooked by buyers. Do not fail to estimate the additional work involved in dealing with paper vs. digital records, and the cost thereof, when bidding on a practice. Also, carefully assess the amount of detail the seller has available. When we buy a used car, we want a copy of every maintenance receipt so we know not only what specific repairs were made but, more generally, how the car was cared for. It's the same process with clients; records are ideally detailed enough to give us a feel for the personal nature of the relationship, not just what transactions the seller executed for the client.
By digesting this information, you'll know more about your new clients than just their net worth as you meet them for the first time. You should have a broad knowledge of them-how long they worked with the seller, what have been his major accomplishments for them, what have they valued most about the relationship, what is their family makeup and how far down and across the family tree has the seller's influence spread, what are their current issues and goals, and so on.
The familiarity you'll gain by reading your clients' files will be your foundation for establishing your own relationship with them, a process that must occur as a series of in-person meetings. If you have clients who trust you and value your advice enough to pay you a fee each quarter to be their financial advisor, you know what it took to develop each of those client relationships. For most of us, the average developmental stage is about one year. Through meetings, particularly the more intensive and frequent planning sessions most of us engage in with a new client, everyone usually feels pretty comfortable with each other after about 12 months, on average.
Human nature being what it is, a buyer will find it difficult to accelerate this process much, except for one factor: he's been heavily endorsed by the seller. The seller has said to his clients, in so many words, I think so highly of this individual (i.e., the buyer) that I want to be his partner. "What," you say, "the seller's going to be my partner? I thought I was buying his clients!" You are, but you're going to be partners during the transition process. Ideally, you are going to work closely together for at least a year, maybe two, as you meet these new clients together, as some of their trust for the seller rubs off on you, and as they eventually get the same warm feeling about you they already have for the seller.
"Can't we just tell these clients I'm buying this guy's practice and that they're now going to work with me instead of him?" you ask further. Not if you want to keep the vast majority of them for the long haul which, according to David Grau, president of Business Transitions Inc. of Portland, Ore. If you or your seller believes the hard work is done once you close your transaction, you're being naive. Client retention will depend almost entirely on what happens one year out from that date.
So plan to get in front of these clients frequently. If the seller has a meeting schedule for clients that's any less frequent than once per quarter, find reasons to meet more frequently with them during this critical phase. Every in-person meeting is a chance to advance the bonding process between you and the clients.