Advisors looking to sell their practices have a numerical advantage in a market flooded with buyers, but they face serious challenges when they get to the bargaining table.

Nevertheless, David Grau Sr., president and founder of FP Transitions in Lake Oswego, Ore., says that in recent months many more advisors have been trying to sell or transition their firms.

“One-in-10 independent advisors right now are selling,” says Grau, who adds that those advisors “only get one chance to do this right” in a rapidly changing industry.

Grau’s latest book, "Buying, Selling & Valuing Financial Practices: The FP Transitions M&A Guide" (Wiley 2016), was announced on Monday.

FP Transitions bills the book as a comprehensive guide for anyone contemplating buying, selling or transitioning a financial practice in the current environment, but Grau pays particular attention to selling and transitioning a book, practice or firm.

The surge of merger and acquisition activity in the past 12 months has been the greatest its been in the past 20 years, says Grau, driven in part by smaller, older advisors who have a dim outlook on the industry's future.

“It’s interesting that we see a lot of pessimism from more senior and experienced advisors,” Grau says. “If not pessimism, then significant concern. At the other end of the scale, younger buyers are typically larger, sustainable and stronger businesses.”

"Buying, Selling & Valuing Financial Practices" follows up a previous book from Grau and FP Transitions that focused more on advisor succession planning and creating sustainable businesses. Those sustainable businesses typically become buyers of smaller practices, says Grau.

Typically, older, smaller advisors sell to younger, larger ones, says Grau, who organizes advisor business models into four different types by size and ownership model: books, practices, businesses and firms. 

“Sellers need to sell to bigger, stronger models with multiple earners and staff with the capacity to take on additional client relationships,” Grau says. “They don’t want to sell to a sole proprietor. If something happens to the buyer, their clients would be left out in the cold.”

At the most basic level, an advisor builds a book of business, whose value and mode of compensation both reside in their top-line revenue generation. Most advisors, 70 percent, according to Grau, merely own a book of business.

Practices, which may include some support staff and infrastructure as well as other advisors who own their own books, rely on an “eat what you kill” model  of income generation and compensation where each advisor draws revenue from his or her own book of business. Grau estimates that practices account for 25 percent of the industry.