Several news reports in the past few weeks have called attention to a growing trend.  One destined to impact the world of financial advisors.  

As the pandemic swept the country, forcing many  to work from home or to simply stay-at-home without work (or income), a trend has picked up.  NPR’s Marketplace reported that a growing number of older Americans were seeking opportunities to transition into retirement.

Overall, 1 in 4 American workers is age 55 or older. According to data from the CFP Board of Standards and Cerulli Associates, 29% of financial advisors are 55-64 years old.  With the memories of Coronacrash still top of mind (not to mention having lived/worked through the 2008 crisis) – many advisors may be looking for a comfortable spot outside of the high pressure fray to reflect and relax.

Years of hard work could position many advisors towards an earlier retirement.  The prospect of continued income from succession planning or in a more immediate sum from the sale of their practice should also help advisors who are leaning in the direction of the door.

The idea of acquiring an established firm should excite younger advisors.  One of the “fastest” ways to grow a practice is through acquisition. One would think that more opportunities will begin to bubble up at some point in the future.  

Both groups need to be prepared and do a little legwork though.

For those looking to sell their practice, here are a few things to consider:

• If you value your business, value your business. Have your business valued before a buyer does. Valuing your business in advance of a sale will ensure you have the ability to negotiate with full information when the time comes.  Or will allow an advocate like 3X to work on your behalf.  ), that you have identified key strengths and weaknesses, and know what reasonable value and deal terms are for a business like yours. An online evaluation service like 3xEquity can provide a quick, reliable, and affordable valuation. 
• Assemble your team. Before you start the process of selling your business, decide what resources you are going to rely on throughout the process. The typical parts of your transition team will include a knowledgeable industry consultant, tax and legal counsel. To find your successor, decide whether you want to network on your own, use a do-it-yourself online listing system, or work with a firm like 3xEquity as your advocate.
• Focus on the bottom line. Most deals in the financial services industry result in a buyer consolidating a seller’s business into their own, making profitability less of a focal point than many other businesses. However, running a “clean” business on paper the last three to five years before a sale will make the business more attractive and provide a faster due diligence process. Specifically:
  • Focus on eliminating as many “owner discretionary” expenses from your P&L.
  • Eliminate/renegotiate referral fees that go on into perpetuity.
  • Make sure employee costs are reasonable. You never want to significantly over pay for an employee and have them pivotal to the transition. 
  • Avoid signing long-term leases or other related obligations a buyer would have to assume.

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For those looking to acquire a practice, here are a few things to consider.

• Ask your BD for help financing. This is where the great BDs separate themselves from the good ones.  Your BD should be championing your efforts to acquire another practice. First of all, they “work” for you, and secondly because your success is their success!  Asking them for financial help to acquire another practice should be a comfortable conversation for you and them…if it isn’t, you might need to reconsider your relationship with your BD.
• Ask your BD for help finding a practice. An advisor looking to exit the business may turn to their BD for advice on finding a buyer/successor.  Your BD should be a clearinghouse for this kind of information and you should feel comfortable asking them to help you make a connection. This is where all of that talk about “we’re all on the same team” comes into play.

For help acquiring (or selling) a practice, for comprehensive certified valuations, and/or advice on switching broker dealers, hundreds of advisors each year turn to 3xEquity.  Let us know how we can assist you.  Click here to schedule a free consultation.