Financial advisors, it turns out, have something in
common with their clients: many of them are not prepared for retirement.
That was one of the conclusions in a new report by
Tiburon Strategic Advisors that focuses on the growing acquisition
market for financial advisors.
Among the findings are that most advisors do not
have written succession plans. Only about 45% of the largest fee-only
advisors and 29% of the largest independent reps have such plans,
according to the report.
That could present a problem, the report notes,
since advisors are aging, with 51% of all independent advisors now over
the age of 50 years old.
Furthermore, 53% of fee-only financial advisors and
50% of independent reps intend to sell their businesses upon
retirement-typically a sale to an existing partner or employee.
"The financial advisor acquisition trend is emerging throughout the world," the report states.
Valuation will become a significant issues as
advisors continue to age. There is currently a large discrepancy
between what advisors think their practices are worth, on average, and
the amount at which they are actually sold, according to the report.
The report recommends advisors pay close attention
to four value drivers: revenue sources, institutionalization,
benchmarking and client demographics.
The report states, for example, that institutionalization creates value
by making it easier to transfer a business. Benchmarking, meanwhile,
allows buyers and sellers to assess value by determining how a firm
compares to other firms.
In terms of revenues, fee-based businesses receive
higher multiples than commission-based businesses, the report says. For
sales conducted through Business Transitions, an online sales and
acquisitions service, multiples are 2.1 times revenues for fee-only
practices, 1.8 for fee-based and 1.1 for commission-based.