M&A activity is also accelerating due to more readily available bank financing and the development of new financing structures and valuation techniques.

Valuations play a central role in preparing a firm for a transition, says Grau, yet sellers are often unaware of the best ways to assess their practices.

“The most important part is to turn valuation over to a neutral, experienced and credentialed third party," he says. "Take the issue off the table early in the negotiation. It’s the lynchpin in the process. Valuations knock more deals off the table than any of the other elements combined.”

Advisors selling their practice are often concerned about profitability, which leads them to use an earnings-based valuation. However, the profitability of their business will change after it’s sold to a larger, more efficient firm.

Yet many sellers continue to use an earnings-based method to approximate the value of their business, Grau says.

“They’re applying the wrong approach to the wrong business model,” Grau says. “Since sellers most often come out of the book or practice ranks, they’re not highly profitable. The buyers won’t care.”

Valuation should take a realistic, market-based approach in lieu of an academic or theoretical one, adds Grau, using different metrics depending on the size and scope of the business.

Aging advisors are also likely to have an aging clientele, notes Grau, which means that lengthy planning and effort may be necessary to make the business attractive for sale.

“One of the most prominent issues is that independent advisory practices have a tendency to stop growing. We call that going into attrition mode,” Grau says. “Especially if the owner is a force of one or has a small staff—they start taking Friday afternoons off. Then they take all day Friday. They stop investing in marketing. Their demographics get worse. It’s easier to head off if you can get three to five years ahead of the problem. Sometimes it takes a merger into a smaller company to bring in someone younger, but with a lot of energy, sometimes it takes a new hire. Maybe that younger owner would become the buyer. Advisors should give themselves options.”

Grau’s book walks advisors through an up-to-date discussion of regulatory and legal considerations that must be addressed before a transition.