How Do You Buy a Financial Services Practice?

Bzzz Bzzz Bzzz—the mobile phone on my desk is about to rattle its way onto the floor. Who is calling? The mid-career advisor looking to grow his practice by acquisition. “Aaron, have any good practices for sale?” they ask. Happens daily. Multiple times.

With an average industry age of 58 and thousands of advisors turning 65 on a daily basis, you would think there would be practices for sale right and left. And there are. However, I am not always hearing about them. Why? Not because I add value, or make the process easier for them, but because I cost money and eat into their profit margin. Short-sighted maybe, but not uncommon.

So what does it take to have a successful practice acquisition and how I can you put yourself in a position to acquire one?

I can go on for hours about what it takes to buy a wealth management practice, and if you call me, the chances are good that I will. Let’s break down a few simple steps that you can take today to make yourself more attractive to a seller. In future posts, I will go in to detail on valuations and deal structure.

Step 1: It’s the Financing. Many solutions exist today for acquisition financing. Lenders look at your personal revenue, net-worth, and your collateral such as a home, cabin, or business property. Email me and I will introduce you to a few lending solutions that make sense. Getting pre-approved financing for a small acquisition (and familiarity of the process if you make a larger acquisition) gives a seller tremendous confidence—a key factor in all practice acquisitions. Going through the lending process will give you a better sense of what size firm you are interested in acquiring. Take note of your debt service if you borrow money; the amount of the loan repayments plus the income tax you would owe on that revenue.

Step 2: Know and market your practice. How many households do you service? What is the maximum capacity your staff can handle? What recent steps have you made to maximize your efficiency in your practice to service more clients? What are your fees and how do you break those down for an individual client?

When I am selling a practice, I create a storybook on the firm that includes the statistics and more importantly a narrative on the service and investment philosophy of a firm. Having a well thought out marketing piece for sellers shows you are serious about and have invested the time it will take to make an acquisition happen.

Step 3: Prepare for the workload. Many prospective buyers look at the revenue that will come in from an acquisition. Instead, focus on the workload. You are about to acquire potentially twice as many clients as you have now. How are you going to handle that additional workload? Sellers want to know each client will be taken care of. They are handing over lifelong relationships. Develop a plan that you can share with this prospective seller to showcase your work ethic, your client service process, and how you can effectively take on their clients in addition to yours.

Preparation as a buyer is essential for being attractive to prospective sellers. Showing you have prepared for an acquisition puts you miles ahead of your peers. Sellers may seek you out and business brokers will have confidence that an introduction to you reflects well on their process and is productive for their client.

Stay Tuned for Part 2