Selling your Financial Planning practice to a family member

Selling your practice to a family member

Although the number of financial advisors nearing retirement age is growing, less than 20% have a formal succession plan. Many are hoping to sell their practice to another advisor and some are bringing their children into the business with the expectation that they will take over. Involving family doesn’t guarantee success but with proper planning and strategy it can be the ideal situation. The experienced advisor will have a more vested interest in the arrangement when it involves a family member and will probably remain “only a phone call away” from that family member for many years. Blood is thicker than water and it is natural to want the family member to be successful. This brings added trust, comfort, security, and loyalty to clients often leading to an increase in retention and growth.

Before bringing a family member into your practice it is important to look at the partnership objectively. Is this person really a good fit or are you bringing them into your practice because they are family and you want to help them succeed in life? You may want to step back and ask yourself the following questions before proceeding;

· Did they approach you about this business or did you approach them?
· Can you step back as a parent (or family member) and communicate as a business partner?
· Has this family member handled constructive criticism well in the past?
· Have they demonstrated initiative in being involved in this business? (ie; taken courses)
· Do they a passion for helping people? (ie; what past jobs/career did they have)
· Are they willing to work nights, weekends, and go the extra mile to build their business?
· Are they good at building and maintaining relationships?
· Are they self-disciplined, self-motivated and able to multi-task?
· How have they demonstrated they are serious about this career? (ie; talked to other
advisors, taken courses, put together a business plan, etc)
· Are they mature, responsible, organized, and goal oriented?

Having a clear written plan is even more important when family is involved. Outlining objectives, expectations, roles, responsibilities, check points and a backup plan is essential. Although they are family they must be treated as a business partner. Other family partnerships have failed in the past due to personal feelings, lack of honest communication and having a biased opinion. Considerations you should look at when adding a family member to your team are;

· Have you clearly outlined your objectives and expectations?
· Does the person have the required skills and knowledge?
· What are their strengths and weaknesses?
· Do you expect them to find their own clients or will they work with your clients from the beginning?
· Is your office administrator clear on the arrangement and their role moving forward?
· Do you they require training in specific areas? Are you prepared to coach them?
· What is your current process when dealing with clients? What may need to be changed?
· Have you analyzed, segmented, and reviewed your book of business with them?
· Which clients, products, procedures, do you want your family member to focus on?
· What is the compensation structure now and in the future?
· What is your system and schedule for performance reviews?
· What is your plan and time frame for exiting the business?
· What is your backup plan if the arrangement does not work?

Having a family member take over your practice does not come without challenges. I recently spoke with an IPG associate who brought his son into his practice. When I asked him about any challenges he was facing he said balancing pushing too hard or not hard enough was a concern. He also said leaving business discussions at the office and not at the dinner table was important.

It is a great feeling of joy and satisfaction knowing you have coached your child and prepared her/him to take over your business. Where she/he may lack in experience they make up for in technical skills, energy, fresh ideas and commitment. Children and other family members can be a great asset to your succession plan if you have done your due diligence and carefully assessed their potential objectively. If you are unable to analyse the situation without being biased then ask someone else to do it for you. It will be well worth the time and effort in the end.

Purchaser Due Diligence – The First 100 Days

Congratulations, you’ve found a financial advisor that is interesting in selling their book to you. Now the hard work begins as you must begin your due diligence and planning prior to closing the deal. If organized properly, both parties should be able to accomplish this within about 100 days.

Jointly Develop your 100 Day Action Plan

A 100 Day Action plan is essentially a business plan that both parties will follow. A 100 Day Action plan will include:

– Purchaser and Seller Due diligence
– Getting your legal work done
– Developing a script for stakeholder communication
– What has to be changed with banks, dealers, MGAs, suppliers etc
– Decide on the Purchaser’s and Seller’s roles during the transition period
– Map out a game plan for the 2nd 100 days

Confidentiality Agreement

A prudent seller should insist on both parties signing a Confidentiality Agreement prior to starting any due diligence. A good agreement should also include a client non-solicitation in favour of the seller.

Letter of Intent and Exclusivity Agreement

A Letter of Intent should be signed that states the purchaser’s intent on pursing a deal subject to a mutually acceptable due diligence process from both parties. Purchasers would be wise to request an Exclusivity Agreement that states that the seller will not pursue or entertain other 3rd party offers during the due diligence phase.

Secure Financing

A seller should insist on proof that the purchaser is able to finance the acquisition. Please refer to future blog articles on financing options.

Purchaser and Seller Due Diligence

- Obtain a breakdown of the client list, revenues generated, products and services used and size of their holdings

- Obtain and review the last three year tax returns to confirm revenue and expenses related to the book.

- Obtain a list of all appropriate licenses held and proof of errors and omissions coverage continuity.

- List of all provincial jurisdictions where clients reside along with any out of country situations.

- Listing of all prior dealer and MGA relationships

- Listing of all client complaints along with details of resolution and all compliance department correspondence.

- Details and documentation of any dealership and regulator audits including deficiencies and plan of action.

- Listing of all non insurance and industry activities.

- Details of any employment matters

- Referral Arrangements

Purchase Agreement

If you’ve reached this point, congratulations, it’s closing day. Now you must start your 2nd 100 Day Action Plan. Stay tuned for our upcoming article on the 2nd 100 Day Action plan.

Get professional legal help

This is not a good time to skimp on professional legal advice and help. Be sure to have a competent lawyer draft your legal agreements and be prepared to share the legal costs.

IPG Advisors Raise $5,800 for Haiti Relief

We are proud to announce that the financial advisors of Independent Planning Group have raised $5,800 for Haiti Relief. The Canadian federal government, in conjuction with World Vision, will match this amount. A special thanks to the financial advisors that contributed.