5. Have A Continuity Plan
Successfully executing an exit plan should be a joyous event for any advisor, but sometimes life intervenes. That’s why advisors need a separate continuity plan that protects their family and clients in the event of the advisor’s sudden death or disability. For large, well-resourced firms, this is not as big an issue as it is for smaller-sized practice and book owners. In any event, advisors should be proactive and find a viable solution on their terms, such as a formal merger. Otherwise, their broker-dealer could take over and sell the practice on theirs, likely for a fraction of what it’s worth.
6. Sell On The Way Up!
Obviously, the best time to sell any business is when it has reached its peak value. The problem for many prospective sellers is that they don’t have the ability to determine exactly when that is without the help of an impartial third-party expert. As a result, they wait too long, allowing inertia to set in, which for senior advisors can spark an irreversible decline in their business. One way to possibly avoid inertia? Consider both the trajectory of annual gross revenues over a five-year period, along with the net number of new client relationships that have been established over the most recent 12-month cycle. Once those metrics level off, it’s probably time to sell.
It’s likely that much of the above raises more questions than answers—and that is exactly the point, because it’s important to elevate these issues now while there is still plenty of time to address them and come up with solutions. The vast majority of successful independent advisors nearing retirement age will have only one opportunity to maximize the value of their business in the form of a sale—you owe it to your clients, your family and yourself to do it correctly.
David Grau Sr., J.D., is the president and founder of FP Transitions, which partners with independent advisors to build businesses of enduring and transferable value. The above is adapted and excerpted from his second book, Buying, Selling, & Valuing Financial Practices: The FP Transitions M&A Guide published by John Wiley & Sons in August 2016.