In our travels and discussions with hundreds of financial advisors over the years, we have discovered that many independent financial advisors do not intend to retire from until they are forced to do so. Why is this? Many financial advisors will say that they love the business, love to help people with their financial objectives, and lastly, do not feel that current book valuations properly represent the true value of their business. One advisor once commented, “Why should I sell my book for three times annual gross revenue when I can stay in the business and earn more?” This logic could spell trouble for these advisors and our industry for many reasons.
Competition keeps heating up for Independent Advisors
The main competitors for the typical financial advisor in Canada are the major banking institutions. In recent years, banks have expanded their financial advisory businesses into effective and competitive units that not only retain assets but collect new assets from other sources. As banks continue to grow their business, established financial advisors are happy to just maintain their businesses and this could spell competitive trouble for financial advisors. If you’re not growing, you’re dying!
Clients want their Advisors to Plan too!
Clients of financial advisors, especially the ones that are younger than their advisor, have developed a long and trusted relationship with their advisor and they want to know that their needs will be looked after even after their advisor is no longer able to. A responsible advisor should have a plan that at a minimum would deal with an unexpected death or illness (see our sample Continuity Agreement below).
Selling to an employee or junior advisor
One of the main benefits of being a financial advisor is having so many options when it comes to retirement. You can choose to sell 100% of your business, 80%, 60%, 40% or perhaps you just want to keep a hand full of clients, maintain your self-employed status and have more free time. Once you decide, the most important step to ensure a smooth transition is finding the right person to take over. There is no shortage of buyers out there but finding the right person who compliments you and your business is of utmost importance. You have set the bar with your clients so the person taking over must maintain (or surpass) the level of service you have provided them over the years. Otherwise, they may look for a new advisor and the value of your business decreases.
Colleges and Universities are training future advisors
The number of young people taking business and finance courses in college and university has increased over the last decade. Where they may lack in experience, they make up for in knowledge, strong business and technical skills related to this field. For example, Algonquin College offers a 3 year Business program with a major in Finance that includes the completion of the Canadian Securities Course, all CFP courses and a complimentary membership to Advocis (The Financial Advisors Association of Canada) during the course and for their first year in the business. They are also encouraged to attend the quarterly professional development days at Advocis during their school year which is a great opportunity for them to interact and network with their peers. It is also an opportunity for established advisors to meet potential partners.
Once you find the right person, the secret ingredient to their success is your guidance and mentorship. The best training for a new advisor is to sit in on client appointments with you and discuss the situation after. You cannot learn this from a text book.
You may also consider selling your business to one of your employees. Employees offer huge value because they already have a relationship with your clients and this often helps to make the transition seamless. As well, an easier transition of clients would also make your business more valuable. They know you and how you work, the products, procedures, systems and will probably require minimum training.
Take inventory of your employees skill set
If your employee is not licensed or may need additional training, take a moment to document a list of what the employee must accomplish prior to buying your book.
You may want to consider a training program focused on specific areas like networking, marketing, fact finding, compliance, business planning, financial planning software, and the client interview process. (IPG has a training program like this for new financial advisors which is also available to our affiliated offices).
As a Business Development Manager for Independent Planning Group, my objective is to help established financial advisors meet junior advisors. If you have any questions, please feel free to contact me at jchapman@teamipg.com.
My next discussion will be “Now that you found the right person, what are you options on paying them and how will they purchase your business”?
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