Preparing to sell your practice is a bit like preparing for retire- ment: The earlier you start, the
better off you’ll be — and exponentially,
so. “Advisors should start to prepare
their firms for sale the day they set up
shop,” according to Michael Wunderli, a
managing director of Echelon Partners.
“Advisors must begin with a vision of the
kind of firm that they intend to build.”
This means doing the long-term plan-
ning and creating the kind of firm cul-
ture that will enable them to build a
truly prized, valued organization. “This
process instills discipline, accountability
and stewardship,” he adds.
Other experts, like Advice Dynamics
Partners CEO David Selig, agree that
it’s never too early to plan for the future
sale, as this will give owners more
options. It’s especially important to start
early if you are thinking about setting up
an internal succession program.
Many advisors prefer internal succession programs. This process assures
them that their firm will maintain its
independence and continue into the
next generation without them.
Selig says he gets calls from advisors
in their 60s, who don’t have enough
time to find the right advisors to become
successors. This process isn’t easy. Not
all employee advisors are capable of
running a firm, and many don’t want to
be owners. He typically proposes other
options to these late-to-the-party owners — such as an outright sale of their
firm or a search for an outside investor.
Maintaining momentum in the sales
process is crucial for a successful sale,
according to Wunderli. “Anything that
slows or disrupts momentum can hurt
firm valuation and even the chances of
the deal going through,” he says.
If possible, Wunderli recommends
firms should put themselves on the market after they’ve had two good years and
still expect strong results in the coming
year. And not all the firm’s positives
should be shared with prospective buyers upfront.
Designating a deal team that has all
the updated firm documentation and
can answer questions about the firm’s
finances, operations and compliance can
help too. Along with all pertinent financial docs, the deal team needs to have
copies of client contracts and custodial
agreements, for instance.
There are a number of steps owners can
take well in advance of putting their firms
on the market to make them more attractive to potential buyers. For example, buyers find practices with recurring revenue
streams far more attractive than commis-sion-based businesses. Multi-generational
client relationships are similarly prized.
Prior to shopping their firms, independent firms should take these steps to help
them maximize their value, Selig says:
1. Professionalize the business: This
means focusing on core competencies
and transitioning a firm from a practice
to an enterprise. Advisors may want to
focus on their client relationships and
portfolio management and outsource
their human resource, operations and
technology work. Firms that have suffi-
cient AUM to warrant hiring professional
managers, like a president or COO with
no direct client responsibilities, grow
faster and become worth more over time.
2. Institutionalize client relationships: Optimally, clients should be dealing with multiple staff at the firm, not
siloed advisor cowboys who can always
ride out of town.
3. Incentivize a growth culture: All
firm advisors and staff should understand that they are expected to help
grow assets, revenues and the number
of clients. Compensation programs must
encourage and reward these behaviors.
Beginning with the end in mind is the
second habit of author Stephen Covey’s
“ 7 Habits of Highly Effective People.”
Advisors need to remain focused on building a business that will be of maximum
value to sell — from the first day they open
their practices and every day thereafter.
They also should operate with a clear
vision in mind and develop an action plan
to turn their vision into reality.
Mark Elzweig is head of Mark Elzweig Company,
a New York-based executive recruiting firm.
Reach him at email@example.com
RIA LESSONS & LEADERS
By Mark Elzweig
What to Do Before You Sell Your Practice
Finding the right advisors to buy and run a firm isn’t easy. It pays to start
early and take other crucial steps for a successful deal.