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.
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