Buying & Selling Profitably: Determining the True Value of an Advisors Book - Maximizer CRM

Buying & Selling Profitably: Determining the True Value of an Advisors Book

BY Patrick Sutherland, Director of Sales (Americas)
April 3, 2018

Whether you’re looking to sell up – or want to expand with an acquisition – knowing you’re getting the right price – and value – from a transaction is critical. A good transaction is more than buying a book of business and adding on a multiplier that satisfies both parties. You need to know the book’s value and whether it fits in with your strategy, while during handover, easing the transition for advisors and clients alike.

Being strategic

Whether buying or selling, your first consideration is whether it’s a strategic direction for you and your business. Selling? Chances are you’ve built up a loyal client base. You don’t want to hand them off to just anyone for a quick buck.  You probably want a buyer who shares your values – and who will continue to build on your hard work and vision well into the future.

Buying? It can be an outstanding way to rapidly expand your business.  But you’ll need to look at your book holistically to figure out if it’s the right mix for you and your business. A book with most clients mid-way through retirement may not earn you a lot of money (unless your specialism lies in estate planning). Conversely, a book with a majority of clients under 40, with less than $100k in investible assets, may seem like a poor investment – or it could have tons of growth potential. (We’ll consider some criteria for assessing books a little further down.)

Another buying- and selling-point is having an ordered book of business. While the Financial Advice industry follows similar standards and processes – each advisor runs their business differently. And acquisitions are costly enough without having to worry about data migration and team alignment. A book from an advisor following standardized processes and operations – such as a book stored in an industry-specific CRM – will be of much greater value.

Making your book valuable

As a buyer, you’ll want to know from the get-go who the most profitable clients are, which clients have the most potential for growth, and which clients are well-into retirement and so require a limited range of products and services.

As a seller, you’ll want to create an attractive proposition for the buyer with a segmented book of business. Having clearly identified A, B, C and D clients makes your book much more marketable. Buyers have an easier time assessing whether it fits in with their strategic vision.

The handover

Selling or buying a book is just the start of a month- or even year-long process. The first consideration will be logistics, including data migration, structuring or restructuring; rebranding and staff training. (The right software can be of instrumental value here.) The second involves the delicate process of transitioning clients. When a book is sold, clients aren’t obligated to stay – and any disruption might prompt them to jump ship. As a result, the new owner will want a book that is ordered, with complete notes and documentation, so the new advisor can seamlessly pick up where the incumbent left off.

Other considerations (if you’re a buyer)

Growth-rate of clients -- It can be all too easy to cherry pick the clients that have large accounts.  You’ll need to dive deeper – or chance missing a golden opportunity. Young professionals, for example, may show lower account balances, but their growth potential can be huge, especially as they progress through their careers and start families. Consider propensity to purchase, not just account size.

Client volume – Likewise, bigger is not always better. Does the volume of clients fit in with your strategic vision? Will you have the resources to take them on?

Length of relationships – How long have clients been with an advisor? Well-established relationships are likelier to survive a transition – assuming everything goes smoothly.

Age of clients – The age of clients will also impact the value of the book. Unless your business specializes in estate planning, a book of clients all over the age of 65 generally won’t make you as much money as book filled with clients in their peak earning years.

Overhead – Finally, when you transition to a new book, you may get more than just a client database. You could acquire a whole team, including the associates and support staff critical to serving your new clients. Consider how that might impact your business too.

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