TRANSITION TALK

One of the fastest ways for an advisor to grow their business is to acquire another advisor’s book of business. Most advisors see this “traditional acquisition” route as a quick and easy way to increase their revenue and managed assets, but if unprepared this growth path can be challenging and technically complex.  

There has also been a significant increase in competition for traditional acquisition opportunities in recent years resulting in the transactions not being as economically viable as in years past–especially for an advisor seeking to use the cash flow of the acquired book to pay for the acquisition.

Luckily, there are a few other strategies that offer the potential for meaningful growth and, over time, might even provide greater enterprise value.  Strategies like mergers, continuity partnerships, equity pathways for next-generation owners (G2 owners), strategic partnerships, and Sell and Stay® transactions offer alternatives for advisors who may not have the enterprise strength or firm depth for a traditional acquisition.  These alternative options take planning and patience, but can yield incredible growth and value in the long run. Many of these strategies also present powerful opportunities to create enterprise value when combined with an advisor’s organic growth.  

Looking back over the past few decades, you can easily spot the trends and physical changes in our industry. Since 2000, when FP Transitions formally opened its doors, I’ve seen our profession, especially in those working under an independent broker-dealer or hybrid model, steadily shift to fee and advice-based solutions. Early on, most practices that we represented were made up primarily of transaction or non-recurring revenue; today advisors build businesses with a focus on fee-based income streams. Independent insurance companies are evolving as well with a sophisticated and wide array of recurring revenue.

Along the way, these practices have become not just more valuable, they are also physically larger and stronger. This requires more qualified people to analyze, give advice, produce revenue, as well as the adjunct talent to support these professionals. Looking forward, we see an ever increasing need to recruit and retain the best talent in the industry to support not just where your practice is today, but where that growing business will be ten years from now. Everyone has read about the need for recruiting; but the story has shifted in the past few years and will continue to do so going forward. Rather than simply hiring next gen talent as the need arises, this could well turn into a fierce competition to adequately reward and retain that talent as more and more advisory businesses reach the next level of success and draw upon a talent pool that has scarcity written all over it. 

Over the past two and a half decades of working in this industry, as a regulator, an attorney and now at FP Transitions, I can safely say that I have never seen a better time to be the seller of an independent financial services or advisory practice. The commonly applied term, “a seller’s market,” barely does this observation justice. We are seeing so many supporting elements (price, terms, taxes, financing, demand, etc.) come together right now, that this may be the peak for sellers for years to come.

So here is my message: If you’re thinking about selling what you’ve built and handing the reins to a strong, next generation acquirer at any time in the next two to three years, you need to start thinking about these items today. You really need to understand why this may be the perfect time to call it a day and to sell for the full value you’ve built over the length of your career and to let someone else be responsible for the future. In a nutshell, here are the elements that are creating, perhaps simultaneously, this great opportunity at the peak of your career:

Last week, FP Transitions attended the NAPFA Spring Conference in Phoenix, Arizona which wrapped up on Saturday. Thank you to all the clients and visitors who stopped by to visit with us. We always love hearing your questions, stories, and plans.

The Next Generation Showing

I was happy to see so many young people involved this year. NAPFA’s Genesis group–members 33 old and younger–was well represented and students from Kansas State University and Texas Tech University were working as event volunteers.

I had the opportunity to speak with several of them, and they said that in meeting so many advisors, they were learning what different job environments were available; they could work at a business with 100 advisors, join a solo practice, or anything in between. In doing this exploration, they have a better chance to start out on the right foot. It was exciting to see the early sparks of motivation and passion in these young advisors-to-be. 

Family Businesses

Several advisors stopped by the FPT booth to talk about bringing their son or daughter into the business. Having worked in a family business myself, I know how rewarding it can be. There are special considerations, though, and as advisors brought up, situation-specific concerns: How do we balance work and family? What impact does that have on the kids who aren’t in the business? How will it affect an office with non-family staff and advisors?

“Mergers & Acquisitions” is a phrase that gets used off-handedly, but those are substantially different transactions. An acquisition itself is a complicated enough process. But in a merger there are the additional components required to wholly integrate two separate businesses into one surviving entity.  Those complexities are why each merger engagement presents circumstances and challenges unique to the companies, and individuals, involved. Those complexities can be solved, but the path to the solution is often not apparent to the inexperienced or unwary. 

There are threshold issues a business owner should consider before jumping into the process of merging his or her business with another business. In the video below, two of our transactions experts, General Counsel, Rod Boutin, J.D. and Assistant General Counsel, Ericka Langone, J.D., discuss some of these important considerations.

Last week, FP Transitions attended the FPA Retreat in Phoenix, AZ. We want to say a big thank you to all our clients and the visitors who stopped by to talk with us. We had a wonderful time speaking with new business owners, exiting advisors, and many others at a variety of points in their careers and growth journeys.

“Succession Challenge”

On Wednesday, FPT president and founder David Grau Sr., J.D. joined Michael Shockley, JD, CFP™ of RGT Wealth Advisors and Michael Futterman of Janus Henderson Investors on a panel addressing the “Succession Challenge,” moderated by Julie Littlechild of Absolute Engagement. The discussion featured data from a newly-released FPA / Janus Henderson study.

While 73% of advisors don’t have a written succession plan, the good news is that an increasing number of advisors are setting a goal for the value they want to realize for their business and 75% feel they are on track to meet or exceed their goal.

The single, biggest threat to an independent advisory practice is not the lack of a succession or exit plan, it is the lack of a plan to protect client interests and business value in the event of an owner’s sudden death or disability. And still, relatively few practice owners have implemented a reliable continuity plan.

As you put together your own unique plan, here are six best practices to consider as you create an effective and practical continuity plan:

1. Put your plan in writing. Create a concise, clearly-written continuity plan so that it works under adverse circumstances, without your ongoing involvement.

2. Use an industry-specific valuation for market value in a transition to a third-party buyer or external continuity partner, or an equity-based valuation for equity ownership interests as is common with internal continuity partners. For situations like death or disability, it is important to quickly, and accurately determine value. Be sure the determined value comes from a credible, third-party opinion with the database and accreditation to support the result.

3. Update your buy-sell agreement and valuation on an annual basis. As your business grows, you’ll want to capture current value and deal terms that support an agreed upon purchase amount. A routine review of the agreement can help practice owners ensure that their document addresses changes in circumstances and provides for evolution of the plan.

This week our President & Founder, David Grau Sr., J.D., is traveling to NYC to receive an Icons & Innovators Award from Investment News along with 19 other incredible industry visionaries and thought leaders.

We are incredibly proud of David and our team who continue elevating the industry with new ideas for long-term business growth and sustainability.

Please join us in congratulating David on this honor!