The last several years have taken their toll on everyone. Navigating a pandemic, along with volatile markets, shifting work cultures, and large-scale cultural changes has forced many advisors to work long hours while dealing with excessive stress and worry. When markets are turbulent, clients naturally demand more of an advisor’s time and attention, making it very hard to create a work life balance. As a result, many advisors are experiencing burn out.
When burn out sets in, advisors can find themselves wondering if it’s time to hang it up for good, or if they just need to make a change to create a workload they can manage. If you are finding yourself in this situation, there are a few questions to ask yourself so you can determine if it’s time to sell or if you need to just make a change in your practice.
Question 1: Why Are You Still Working?
So often it’s easy to get in a rut and keep grinding along either because we feel we must or because we haven’t stopped to ask ourselves if it’s still necessary. It’s important to ask yourself are you working because you love it or because you feel you must keep income flowing? Are there aspects of the job you want to focus on and others you wish you could just step away from? Depending on your answers, there may be two scenarios here.
Sell and Stay/Tuck In
If you want to keep working, but either want to step away from serving clients, or want to go back to only serving clients, then a sell and stay scenario may be a good solution. It lets you merge with a larger practice so you can shift from wearing all the hats and move into a more specialized role, either as a client facing advisor or as an executive leader. It also lets you cash out the equity you have built while still having a career and income source for the next several years, until such time as you do decide to retire.
Sell and Leave
If you feel that your career as an advisor has run its course then it may be time to sell completely. It’s important to know what you are moving toward or what you will do once you are no longer running a practice. We will talk about this more later in this article. But if everything about being an advisor has lost its luster, it may be time to cash out and start a new venture.
Question 2: Can you Afford To Sell?
A problem we see often is advisors thinking that their practice value will hold steady all the way up till the time they decide to sell. Without a consistent growth trajectory, any asset will peak and eventually decline. A financial practice that relies on the assets of an aging client base will decline faster than one with a growth strategy that leverages generational planning and other solutions to create long-term value for a perspective buyer. Unfortunately, many advisors 1) don’t put the same care and attention into planning their own retirement and 2) operate under false assumptions about the actual value and monetization of their practice.
Value versus Monetization
First, advisors need to understand that your practice value and your ability to monetize the equity of your practice are not the same thing. Many advisors falsely believe that a practice valuation can be used to support the price they want, and that the valuation represents the highest price you can expect to receive for your practice. Advisors also falsely believe that the method they choose to sell their practice doesn’t have any impact on price. Truth is, most advisors who sell without the aid of a Successions Consultant earn on average 35% less than advisors who sell using a qualified third-party.
The Danger Of “Cruise Control”
Advisors often continue to work to maintain a steady income but stop putting any effort into running and growing a practice. As mentioned earlier, there is a point at which practice value will peak and rapidly decline, especially if they advisor isn’t doing any generational planning or adding new, younger clients on a consistent basis. As older clients begin drawing down assets or heirs take assets to another firm, the value of the practice steadily declines. This impacts the value of a practice and an advisor’s ability to monetize practice equity. Buyers want to purchase something with current value and growth potential and will pay a premium for a practice that has a solid growth trajectory in place.
Question 3: What Would You Do Next?
If you are thinking it’s time to sell your practice, having a purpose is critical to navigating your exit from financial advising. A lack of purpose or goals is what keeps so many advisors hanging on long after their passion and commitment to the practice has waned. Contemplating retirement from advising can feel like staring into an abyss. But retiring from advising does not mean professional death. Many advisors move into leadership roles within the industry, serving as educators, mentors, and financial experts. Others become professional volunteers, sustaining their needs with their investments and practice sale while giving back to causes they care about. Others start new careers, testing out other passions or interests that generate income while cashing out the equity they have built in their practice.
No matter what, it’s important to figure out what you are moving toward before you list your practice for sale. Selling a practice is an emotional endeavor. Not having a clear plan for after you sell can create additional stress and negative emotions that can impact the deal and transition. As with anything, you want to approach your practice sale with clearly defined goals and a vision for the future. In this case, a vision for your personal future.
No matter where you are in your career, it’s good to know what your options are and to have the insight of an experienced third-party. Even if you decide to sell years down the line, knowing what your practice is worth and what you need to do to prepare is key to planning an advisor succession. To help with this, we offer advisors a free 30-minute consultation. During your session we will discuss your situation and explore your options, as well as things to consider.