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.

Selling to an internal partner

Methods and Various Options of Selling a Book

Selling to an internal partner

The definition of retirement to many people is being able to do exactly what they like to do. For financial advisors this often translates to managing a small number of clients and having more free time to spend time with family, friends, golfing and travelling. The beauty of this business is that with proper planning, strategizing and delegating you can do just that. The first step is finding the right partner to take over for you. You may not have to look very far. This partner could be someone already working with you.

There are many advantages to selling your book of business (or part of it) to someone who not only knows you and how you work but also who knows your clients. The transition will be more seamless when the person taking over for you has already established a relationship and trust with your biggest asset, your clients. This could be an existing staff person or an associate advisor.

Financial advisors who invest in the development and training of their staff and associate advisors, with the intention of making them partners in the future, increase the probability of a smooth and successful transition in the future. Communicating your plan to your clients demonstrates your professionalism and care for their financial future. They like knowing who will be there to take care of them after you retire.

Considerations when selling to an internal partner;

· Do your clients trust and respect them?
· Are they entrepreneurial and business minded?
· Do they have similar values, goals and business style?
· Are they ambitious and knowledgeable?
· Are they dually licensed?
· Are they furthering their education?
· Have you discussed business agreements (ie; confidentially, non-solicitation, buy-sell)
· What are their strengths and weaknesses?
· What is their business plan?

If you are working solo in this business you may want to consider adding a partner to your team as part of your succession plan. This allows time for both you and your clients to get to know one another. Many young people graduating from universities and colleges with a business degree have completed the courses required for licensing and in some cases they have completed the required CFP courses. They possess business and technical skills, fresh ideas and will bring energy to your practice. If you are prepared to invest your time, knowledge, trust, and money the possibility of a successful partnership is quite high.

Adding other professionals to your business allows you to delegate and focus on doing the things you like to do best. It will free up more of your time and allow you to properly prepare for your succession. It has taken you many years to build your business. Consider adding a partner that you or your dealership already know and trust to carry on what you have worked hard to build. It will feel like a big load off your shoulders.

Succession Planning - Preparing your Client Book to Sell

At one time or another, most of us have been in a situation to compare the products or services of two competing companies. One sales representative has not properly planned their presentation and is “shooting from the hip” whereas the competitor has prepared a professional presentation, collateral sales material, and third party testimonials and has the confidence to answer all questions…which rep will get the business and also demand a premium on their product or services? The same rules apply to selling a book of business.

How will potential buyers view your business?

Before listing a business for sale, financial advisors should take an inventory on their business and develop an information package for perspective buyers. In my opinion, a perspective buyer is someone that has demonstrated a strong interest in buying your book and has the ability to finance the acquisition. All perspective buyers should sign a Confidentiality Agreement prior to receiving your information folder.

An information folder would provide an overview of your book and would include some or all of the following details:

- Total assets under administration (Broken down by front-end, back-end, no-load, fee for service assets, LPs, mortgages) for the past three years

- Demographic and geographic breakdown of client base including list of all provincial jurisdictions where clients reside along with any out of country clients.

- Gross revenue and trailer fees generated across various product and service lines for the past three years

- There are some organizational documents that might be important to include such as, an organizational chart, list of the professional staff, employment contracts, compensation plans, resumes and biographies.

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

- Previous or outstanding compliance/client complaints or claims with details of resolution and all compliance department correspondence.

- Listing of all non insurance and funds industry activities.

Prior to putting your practice up for sale you may consider sending a survey to ask clients what they are most satisfied with and what new services they would like. This feedback would be invaluable to the new buyer and should be included with the documents.

Another good action to undertake would be to fire any problem clients so that they are not included in the sale. It’s almost like putting on a fresh layer of paint on your home, so that all blemishes have disappeared prior to viewing.

Finding the Right Opportunity

Regardless of the type of succession, it is critical to allocate sufficient time to conduct appropriate due diligence. The type and scope will depend upon either being involved in an internal succession or an external transition. The external transition is far more extensive. But, too many times the sellers neglect to conduct the appropriate due diligence, believing that due diligence is the buyer’s exercise. However, it is just as important for you to conduct due diligence, so as to determine whether the buyer has any past, current or anticipated regulatory, legal or financial issues that could adversely impact the buyer’s ability to fulfill its payment obligations under the agreement and/or cause your clients to discontinue their relationship with the buyer.

You can accomplish most of your due diligence by speaking to the buyer’s present dealer, MGA and consider requesting a credit report if you believe it’s added comfort.

Planning for a Perfect Match

Finding the perfect match should not be an accident. Look for a firm that meets your precise criteria, of having a similar investment philosophy, fee structure and approach to client service, with no conflicts of interest. You should be willing to stay on board after the transition to help clients feel comfortable with the transition and to support ongoing development of new business. Carefully defining what you wanted in an acquisition partner should allow the transition to move along smoothly. All the planning and analysis on the front end will be critical.