Biggest Mistakes Advisors Make When Selling Their Practice

Selling a financial advisory practice is a once in a lifetime event, one that can have a tremendous impact on an advisor’s life and family. Yet too many advisors approach this major occasion in their career with little care and planning, or with straight up avoidance and despair. It’s a case of “the cobbler’s children have no shoes,” in that most advisors fail to seek out professional guidance and to plan their own retirement, despite building a career helping clients plan for theirs. That lack of planning can lead advisors to commit several big mistakes when it comes time to sell their practice.

Waiting Too Long To Start The Process

As mentioned earlier, most advisors fail to put the same forethought and care into planning for their exit from the practice. They often wait until they are in their later years or after the practice has suffered some sort of loss before looking at their options. This is detrimental in two key ways. One, it takes time to find the right successor and prepare them to take over the reins. For an external buyer it can take several months to find the right fit and then another 6 to 12 months to transition the practice. Internal successors may need even more time to build the skills and knowledge to effectively lead the practice and serve clients.

Two, without constant growth practice value will peak, and then decline. This decline in value often comes as a surprise to advisors who plan on using the proceeds from the sale of their practice to fund their next venture or retirement. Planning ahead allows advisors to monitor the trajectory of their practice value and plan the timing of their exit in order to fully monetize the equity they have built over decades of hard work.

Not Getting A Valuation Before Negotiating A Deal

Another big mistake advisors make is relying on “rule of thumb” and other methods to determine the value and price of their practice. Most buyers utilize third-party lending to fund acquisitions. Lenders require a valuation from a qualified source to support the loan amount. Often, selling advisors can learn that they severely undervalued their practice and left hard earned money on the table.

Securing a valuation in advance of a sale also allows an advisor to monitor the trajectory of their practice value and make any necessary adjustments to strengthen the value or to time the sale of their practice. Many advisors have started using valuations as benchmarks and decision-making tools, as they can show how a firm is performing in key metrics and where they can improve. This is also valuable information for a successor who is looking to add value or mitigate any potential issues.

Trying To DIY The Sale

Most advisors aren’t experienced in practice sales. As the old saying goes, “you don’t know what you don’t know.” As one of the biggest assets you own, it’s important to seek out the advice and guidance of an experienced Successions expert. Some provide a comprehensive practice sales platform to help you with everything from determining your practice value and how to position your practice in the market, to sourcing a qualified buyer and helping transition the practice. Others provide a la carte or turnkey deal support solutions for sellers who already have found a successor and simply need help structuring the deal in a way that is equitable for both parties. In either case, the prudent thing to do is to seek out advice from experienced professionals who have the tools, resources, and processes to make your practice sale a success.

Not Exploring All Their Options

Another mistake advisors make is not looking at all possible sources for a successor. It may make sense to leverage a sunsetting program with your broker-dealer, but the right fit advisor may not always be at the same firm. Also, most successions services within a broker-dealer or custodian are often designed to benefit the buyer, who will remain with the firm in the coming years. Advisors should also consider whether they want to sell their practice in phases or all at once, and whether they want to list their practice on the open market or want to work with a M&A consultant with a pool of buyers at a specific broker dealer or region.

Not Helping To Transition Clients and Staff

Finding the right buyer and closing the deal is only part of the process. Getting a practice sale to the finish line successfully requires active participation from the seller throughout. This includes actively communicating with staff and clients and helping the buyer transition accounts over to the new practice. Often, this is where deals fall apart and where unexpected headaches can arise. Legal considerations aside, it’s also critical to an advisor’s legacy to properly transition clients over to the new servicing advisor. You spent years earning your clients’ trust and building a relationship. It’s important to end the engagement with integrity and the same care and concern that you have given them over the course of doing business together.

Bottom line, advisors should plan ahead for their practice sale and leverage the advice of an experienced successions team. It’s a major life event and culminates the end of a career of serving clients. It should be handled with care, with consideration for everyone involved, and be designed to leave a legacy that will make an advisor proud. Advisors should educate themselves on the process, actively plan their succession throughout their career, and leverage resources that will help them do it right.

Looking to Sell Your Practice?

Whether you’re planning ahead, looking for a buyer, or have a successor ready to go, we can help. Contact us to schedule a free 30-minute consultation.

About the Author: Anthony Whitbeck

A 35-year veteran of the industry, Whitbeck’s experience, industry knowledge, and track record make him a powerhouse ally for financial advisors and industry leaders. With certified third-party business valuations, legal and lending support partners, and a proven acquisition process, Whitbeck and his team of experts have helped hundreds of financial advisors build, manage, protect, and successfully transition their practice.

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Categories: Advisor Succession

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