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by Emily M. Chiang, CFP®

Emily M. Chiang, CFP®, is a business consultant at EMC Succession Planning LLC and a former financial adviser. She holds a master of business administration degree, serves as co-host of the FPA Business Success Knowledge Circle, and is author of Selling Your Financial Advisory Practice: A Step-By-Step Workbook.

After a gratifying 25-year career as a financial adviser, I began a search for an ideal buyer of my sole proprietor practice in 2010. Over two-and-a-half years, I interviewed 10 financial advisory firms that had the potential to be candidates until I narrowed it down and found a very reputable firm to take over my clients.

In general, I would describe the selling process as challenging, exciting, and grueling. For most advisers, selling their practice is a once-in-a-lifetime experience, and many are ill prepared for this life-changing journey. In retrospect, I did many things correctly and some things less so. I would like to share some of the important observations and lessons from my succession planning process that may be worthy of attention and consideration for prospective sellers.

Decide to Sell

Advisers may have a number of reasons they want to end their involvement with their practices. The “why” will often determine “when.” If you are experiencing any of the following, it may be time to sell your practice:
  • Not interested anymore or very bored with the practice;
  • Exhausted from running the business;
  • Too many senior moments and/or no longer at the top of your game;
  • Business has peaked or stopped growing with very few new clients.

I made the decision to sell my practice primarily due to boredom and the lack of interest in continuing to listen to my clients’ stories. The year before I decided to sell, I said to a long-time client during a very difficult meeting that I was tired of discussing her financial planning issues. Although I immediately apologized for what I said, I knew instinctively that the end of my practice had arrived and it was time to exit.

Build a Team

During the months following my decision to sell my practice, a flurry of activities took place. I contacted a well-known business valuation firm to value my practice. Simultaneously, I put together a wish list for an ideal buyer. I was concerned about controlling the timing of my exit and the kind of buyer I desired, so I made a deliberate decision to sell my practice by myself to an outside firm. I was fortunate to have found a good contracts attorney who had experience working with financial advisers, as well as a tax adviser who had worked on mergers and acquisitions of financial advisory firms. With their expertise at my disposal, I finally felt ready and comfortable enough to begin the journey of finding my ideal buyer.

Find the Buyer

Putting together a list of 10 financial advisory firms that could buy my practice was a challenge. I purposely interviewed firms and/or business owners who had more than 10 years of financial advisory experience, similar client-fee structures, and who were working with the same custodian to ensure a smooth accounts transfer. And because most of my clients were local, I specifically searched for someone with a local presence to provide a similar comfort level.

I interviewed all 10 firms in person at their offices. I carefully observed their body language and watched how they interacted with their colleagues to assess their office atmosphere. During the initial meeting, I inquired about the nature of the buyer’s business practices, investment philosophy, and client service model. Then, I succinctly described my practice to help both parties determine if there was enough of a fit to meet again. Over the course of 18 months, I narrowed it down to four firms for serious conversations and negotiations and was able to sell my practice to a very trusted firm the following year.

Be prepared for the initial meetings with potential buyers. The search process can be long and stressful, and you want to preserve your time and energy for the more qualified potential buyers. During the initial meetings, I was prepared with a list of questions to discuss with the potential buyers and referred to a summary description of my practice for the buyers. By being well prepared for the initial meeting, you will show potential buyers that you are serious about the sale of your practice and that your practice is organized and not chaotic. Most importantly, you want to have a productive meeting in order to begin eliminating the firms that are not a good fit after this initial meeting.

Work two jobs or enlist outside help. It was difficult to be a seller and conduct my planning practice duties at the same time. I grossly underestimated how time consuming and exhausting the selling process was. Essentially, I was working two full-time jobs. Although I had an excellent attorney and an accountant to help me, the learning curve was still very steep. Consequently, I understand why some advisers prefer working with business brokers or an online matching service to find potential buyers.

Customize transition plans before the sale. In order to have a seamless transfer, I should have put together a customized transition plan for each client for the potential buyers. By doing so, possible transition problems could have been resolved before the sale of the practice. If the potential buyers are not willing to strategize with you, then you can safely assume that they may not have the right attitude and temperament to be your ideal buyer.

In addition, it is important to closely review a potential buyer’s sample financial plans and recommendations to their existing clients. If you are managing portfolios, you need to thoroughly discuss the buyer’s investment philosophies, review their investment performance reports, and learn their methods of measuring performance. Be sure to find out if the buyer is willing to make changes to client portfolios slowly over time. If not, you may encounter unnecessary objections and resistance from your clients.

Find the ideal buyer who is better than you. This is your legacy, and in my view, you want to look for a buyer preferably who is better than you in every way. For example: do you really like your buyer and would you feel comfortable enough to engage them to be your own financial adviser and manage all of your money? If so, then you have found your dream buyer. The journey of searching for your ideal buyer is more of an art than science; it is not all about the price of your practice but more about the chemistry and compatibility you share with the buyer. Ultimately, you have to be able to trust your buyer to take great care of your clients and employees, preserve your life’s work, and pay you on a timely basis. If not, you will experience heartbreak, remorse, or regret.

Manage client transitions with utmost care. Both the buyer and the seller should be aware that most clients view the transition period as a trial period. If clients are happy with the transition, they will stay. If not, defections may begin after the seller departs. Therefore, both parties should remain flexible regarding the length of the transition period. In general, the seller should stay on for a minimum of one year to help clients settle into the buyer’s firm. If the transition is not going well, both the buyer and seller need to determine what is not working and quickly address those issues. Financial advising and planning is a relationship business; one size does not fit all transitions.

Many sole proprietors have a lifestyle practice. Their primary motivation is to have the freedom and flexibility to take care of their clients the way they wish, and financial rewards may be secondary. Furthermore, some clients may be personal friends. Therefore, maintaining long-term harmonious relationships with clients can be more important than the price of the practice.

The Third Act

In my situation, I agreed to stay on for one year to help transfer my clients to the buyer. This period was bittersweet. Although it was a relief to help clients settle into a good firm, it was painful to let them go.

After I left, I felt rudderless and disengaged. Essentially, I felt I had lost a big part of my identity. Without a clear idea of what I wanted to do (see the sidebar for more) and hoping to find a purpose, I decided to write a book about my succession planning experience. The process was cathartic and healing. By completing my book, I found closure to my former life as a financial adviser. With renewed energy and a clear vision, I now can focus on the third act of my life.

Consequently, I encourage any prospective seller to think thoroughly about what you want to do during the next phase of your life before selling your practice. By doing so, you will be able to gracefully exit your business and joyfully transition into your third act.

 

Sidebar:

The Time to Start Planning Is Now

Succession planning was a painful and unsettling topic for me and I purposely avoided thinking about it until very late in my career. In retrospect, it was not a good idea to begin this process when I was close to burning out. Generally speaking, one should begin putting together a road map of his or her succession plan 10 years prior to the final exit and allow at least five years for the actual selling process to take place.

Before you sell your practice, be sure to have a plan for the next phase of your life. Prior to starting the process of succession planning, I had vague ideas of what I wanted to do after I retired. For example, I knew I wanted to travel more, spend more time with family and friends, exercise more, etc. But, I did not realize that those activities may not be sufficient to keep me engaged.

In retrospect, I should have worked with a life coach to ascertain what my legacy was as an adviser and to find satisfactory closure. Also, I should have explored more deeply what else I wanted to pursue intellectually during the next phase of my life. I found out the hard way that you should have something to retire “to” when you retire “from” your life’s work.

—E.C.

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