How to sell your retirement plan advisory business
You’ve built a successful advisory business, and now you’re thinking of retiring. Do you have a succession plan? Are you thinking of selling your advisory practice? As you consider your own retirement plan, you need to know the steps necessary to properly position your practice years before it’s time to sell.
Planning for your retirement as a business owner
As you’ve helped your clients envision their retirement—maybe more time to travel or spend time with family and friends—you must have considered your own future as well. Does that future include staying involved in the business after you sell? Or do you want a clean break? And how do the sale proceeds factor into your retirement income needs?
Being able to answer questions such as these will help guide you through selling your business. It’ll contribute to the type and timing of the sale, and how you communicate your transition to your clients.
Creating a lean, mean, and sellable advisory machine
Positioning your business for a sale can take years of preparation, and you should be thinking of it as a marketable asset throughout the life of the practice. Your asset’s value is driven by several factors, including recurring revenue, the quality of your client base, and the efficiency of your business operations. As you’re building your practice, consider how you can improve these areas to increase its value.
Growing your client base, increasing revenue, and providing quality client service are natural focuses in building a successful practice anyway. Now think from the buyer’s perspective:
| Are business records well organized? | Client records and company financials should be organized and easy to gather. |
| Have there been regulatory issues in the past? | Hopefully not, but, if so, keep detailed documentation of issues raised and how they were resolved. |
| What does the client base look like—are their businesses thriving, how large are their retirement plans, and are plan participants active or in retirement? | Clients with growing businesses and participants active in their retirement saving are attractive traits, regardless of the market, as they offer continued, long-term revenue potential. |
| Does the seller have a clear transition and communication plan for their clients? | Having a detailed, documented transition plan adds value to your sale price, saving the buyer time and money. And you’ll want to have a communication plan for your clients when the time comes to sell, but we’ll talk more about that shortly. |
OK, you’re ready to enter the market
Now that you’ve optimized your practice’s value, it’s time to get a price tag and enter the market for a buyer.
“On average, most advisory practices are getting two to three times annual recurring revenue,” or at least four to six times their earnings before interest, taxes, depreciation, and amortization (EBITDA),1 which is more commonly used for larger practices. How does that compare with what you expected? If you anticipated a greater payoff, consider building the business a bit longer, or reevaluate your ongoing involvement post sale (e.g., work part time for added income). It’s also a good idea to ask a third party to value your practice for an unbiased assessment.2
Finding a buyer shouldn’t be hard, as more than half of financial professional firms are interested in acquiring another practice, especially hybrid registered investment advisers (RIAs)—75% of whom are looking to buy.2 The difficult part will be finding the right buyer, who, generally, should have similar values, culture, and financial planning philosophies. This is critical for a smooth sale process, which itself can take years to complete. It’s just as important when it comes time to communicate the change to your clients and give them confidence that they’ll be well taken care of. If you’re deciding to remain involved beyond the sale—partial or gradual sales are common—you may consider positioning the sale as a new partnership to demonstrate your continued involvement. There are also programs and companies that pair sellers and buyers and can help to expedite the process for you.
Financial professional acquisition demand
Financial professional level of interest in expanding through acquisition
“U.S. Advisor Metrics 2020: Dimensions of Diversity and Inclusion,” The Cerulli Report, Cerulli Associates, 2020.
Keep it in the family
An alternative solution to an external sale is an internal sale. Much of what’s been discussed still applies, but with the added comfort of getting to hire and groom your successor(s).
Transitioning clients internally is more common among national/regional broker-dealers and hybrid RIAs, and often requires multiple financial professionals to replace you, at least initially.2 Internal sales can offer more flexibility in payout structures, if you wish to get paid over a longer period. They can also help maximize client retention—clients get to work with junior staff for several years before they take over their accounts.
Internal sales don’t come without downside. Hiring the right people far in advance, training them to build a business and service clients appropriately, and aligning their conduct with your values take years of time and effort, but so does planning to sell your business externally.
Knowing when to sell your business
Deciding to sell your practice is a significant personal decision, and you need to remember that your clients’ best interests come first. Internal and external sales have their pros and cons, and you’ll have to decide what’s important to you to make that decision. Both take several years of preparation to maximize the value of the practice, and even more time to go through the sale and transition process. When the day comes to sign the papers, it’ll be an emotional milestone. Preparing for it well in advance will help all parties achieve their goals in the transaction—especially you.
1 “How to Find a Buyer for a Financial Advisor’s Book of Business,” Bridgemark Strategies, 3/8/2021. 2 “U.S. Advisor Metrics 2020: Dimensions of Diversity and Inclusion,” The Cerulli Report, Cerulli Associates, 2020.
Important disclosures
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein.
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THIS MATERIAL IS INTENDED FOR INTERMEDIARY USE.